Forex research

Commercial Content Analysts
664

[B]Expectations low ahead of central bank meetings[/B]

Today’s UK opening call provides an update on:

• Fed’s Beige Book points to modest to moderate improvement in US economy;
• BoJ leaves monetary policy unchanged over night;
• Expectations low ahead of BoE decision;
• Investors seek more clarity on guidance, rates and minutes from ECB.

European indices are expected to open higher on Thursday, following largely positive sessions over night in both the US and Asia.

The Fed’s Beige Book, release shortly before the closing bell in the US, provided a boost to the markets ahead of the jobs report on Friday. Aside from reiterating what Bernanke said a couple of months ago, that the economy improved at a modest to moderate pact, it also highlighted an improvement in the services sector, which is hugely important to the US economy, a boost in consumer spending and no evidence that higher mortgage rates were having a negative impact on the housing market.

Clearly this is encouraging for the US economy, but it’s hardly the substantial improvement that the Fed was initially targeting when it announced the quantitative easing program last year. One of the major concerns is consumer spending, at a time when oil prices have risen significantly and could rise further if the conflict in Syria escalates, which would be a significant squeeze of disposable incomes. This combined with higher mortgage rates could quite easily choke off whatever recovery we’re currently seeing and the Fed is going to be very aware of this.

It’s been a relatively quiet start to the week so far, which isn’t that unusual in the first week of the month when we have so many central bank meetings on the Thursday and the US jobs report on the Friday. Major events like these can encourage traders to act with a little more caution, and this is especially true in the lead up to one of the most important jobs reports in a long time, with it coming less than two weeks before the September FOMC meeting, when many are expecting the first round of tapering. Also adding to this is the wait for an inevitable military strike in Syria, from either the US or a Western coalition, in response to Assad’s suspected use of chemical weapons, which will now probably come in the early part of next week.

The central bank meetings today are the first major events of the week on the economic calendar, and to be honest, the first has been a bit of a non-event, although this was expected. The Bank of Japan unanimously voted for no change in monetary policy over night, which comes as no surprise given the size of the bond buying program already in place and the fact that, so far, “Abenomics” appears to be working, with small amounts of growth and inflation being seen. This may change once the government brings in the sales tax hike, which many believe could choke off the recovery, discourage consumers and wipe out any inflation that we are seeing. That would require further stimulus from the BoJ, but that is months away.

Next up we have the decision from the Bank of England at midday, although like the BoJ, this is likely to be another non-event. That is, unless we get an accompanying statement, as we got following Mark Carney’s first meeting as Governor a couple of months ago. No change in monetary policy is expected from the BoE today, although any statement could attempt to clarify the banks position on forward guidance, given that so far, it has little no impact on the markets and reassured no one that rates will remain low for a prolonged period of time.

To be fair to Carney, he does have his hands tied on the matter, due to the stubbornly high inflation in the UK and the potential for huge swings, as we’ve seen over the last couple of years. That said, his target of not hiking rates until unemployment falls 0.8% wasn’t overly ambitious, and markets weren’t exactly convinced by the inflation caveat either, with inflation currently at 2.8% and forward expectations only needing to rise to 2.5% before a rate hike is discussed. That said, while a statement or press conference would be welcome, I don’t expect it today, although it is certainly something the BoE should look into in the future if it wants to be more transparent.

Finally we have the ECB meeting today, followed by the decision at 12.45, UK time, and the press conference 45 minutes later. No change is expected again on the interest rates front, but as always, the press conference should create some volatility in the markets. While most of Draghi’s statement tends to sound like a carbon copy of his last, he does usually attempt to provide some verbal stimulus, in the way of dovish comments on interest rates, as seen by his woeful attempt at forward guidance a couple of months ago.

The prospect of a negative deposit rate appears to be off the table again for now, having not been mentioned at recent meetings. I think today, once again people are going to want more from the ECBs use of forward guidance. Draghi has given very little in terms of thresholds in the past, only claiming that by sustained period of time, he means at least a year, which is hardly comforting. As always, the Q&A after should provide the most volatility in the markets, with Draghi receiving very specific questions on guidance, rates and the banks attempts to improve the transmission of cheap funding to the periphery. We may also get more information on the ECBs decision to publish minutes of the meeting in order to provide more transparency, although that looks some way off at the moment.

Ahead of the open we expect to see the FTSE up 21 points, the CAC up 10 point and the DAX up 19 points.

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

665

0:25 Bank of Japan meeting over night
1:08 No change expected from BoE
2:29 Markets look to ECB press conference
4:05 Key US economic releases this afternoon

666

[B]US employment data eyed ahead of September meeting[/B]

Today’s US opening call provides an update on:

[ul]
[li]BoE expected to keep rates unchanged;
[/li][li]Draghi to be quizzed on minutes and forward guidance;
[/li][li]US employment data in focus ahead of FOMC meeting in two weeks
[/li][/ul]
.
European indices are relatively flat on Thursday, as are US futures, ahead of two major central bank decisions and some key US economic releases.

The Bank of England is expected to leave interest rates and asset purchases unchanged this morning. While no change is expected, markets are hoping that the MPC releases a statement with its decision, as it did a couple of months ago following Mark Carney’s first meeting as Governor.

Usually the release of a statement is reserved for major announcements. However, with central banks trying harder to appease the markets and reduce the large amounts of volatility that centre around their decision making, we are expecting the BoE to follow the Fed and the ECB in releasing a statement along with the decision. Additional transparency is one of the things that Mark Carney is expected to bring to the BoE and I imagine it’s only a matter of time until we also see a press conference following the decision, as we get from both the Fed and the ECB.

While it could be argued that the ECB is more transparent than the BoE, there’s still a lot that could be done. For example, ECB President, Mario Draghi, has faced many questions in recent press conferences about the prospect of releasing minutes of the meetings so that we can get a better idea about the positions of the different members. So far, Draghi has not really taken to the idea but there are signs that he, and the other members of the ECB, are coming round to it.

Other things that will be discussed at the press conference will be the ECBs forward guidance. The ECB appears to have given up on the idea of negative deposit rates and further cuts to the refi rate at this stage, and is instead focusing more on forward guidance, if it can be called that given how vague and utterly pointless it was.

Once again, people will be looking for further clarity on the forward guidance, including objective thresholds regarding when the ECB will consider hiking rates again. So far this has not been provided, with Draghi instead suggesting it could be at least a year, but this was far from a commitment. Even if it was, no one was expecting a rate hike in the next 12 months, so it provided no comfort to anyone. Draghi may also be less inclined to elaborate further on the central banks forward guidance, now that the area has climbed out of recession and PMIs suggest the economy is improving.

One thing to note with these press conferences is that the markets tend to interpret Draghi’s words in whatever way suits them, which can create large amounts of volatility.

Finally, we have some key economic releases due out of the US, including ADP non-farm employment change and weekly jobless claims. The ADP figure is seen as an estimate of the final non-farm payrolls figure, which will be released tomorrow, although it has often lacked accuracy, even since the new calculation started being used. People now tend to pay less attention to the actual figure and more to whether we see big swings in it, as this suggests we may see a similar miss when the payrolls figure is released.

The weekly jobless claims figure will also be watched closely and is expected to remain low, around 330,000. There’s been a lot more emphasis on the US labour market, since Fed President, Ben Bernanke, claimed the central bank will reduce its asset purchases later this year, as long as the economy performs in line with expectations.

Employment is a key part of the Fed’s mandate, so it’s no surprise that any figures relating to the labour market are used to predict when tapering will begin. So far we have seen an improvement in the unemployment rate, but questions are being raised over whether the improvement is sustainable. Also, the conflict in Syria has already prompted a significant increase in oil prices and could inflate them further, which could choke off whatever recovery we’ve seen so far, with rising prices at the pump hitting people’s disposable income as well as businesses.

Ahead of the open we expect to see the S&P up 3 points, the Dow up 15 points and the NASDAQ up 8 points.

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

667

[B]Cautious tone in the markets ahead of the US jobs report[/B]

Today’s UK opening call provides an update on:

• Traders cautious ahead of US jobs report;
• Markets price in tapering as 10-year Treasury yields rise above 3%;
• US intervention in Syria to affect Fed decision;
• UK manufacturing and GDP estimate being released.

European indices are expected to open slightly higher on Friday, although the overall tone in the markets appears to be one of caution ahead of a hugely important US jobs report this afternoon.

A lot of people in the markets have been convinced for weeks that the Fed will scale back its asset purchases at the next meeting in September, but the number has increased significantly in the last week or two. The recent economic data has been extremely encouraging, with everything from consumer confidence, to manufacturing and services PMIs and jobless claims posting strong improvements.

A strong jobs report today would just be the icing on the cake really, leaving many with little doubt that the Fed will taper come September. That said, a quick look at the markets suggests that most don’t need convincing any further. I’d say tapering is almost entirely priced in, especially in the bond market where US 10-year Treasury yields rose above 3% for the first time in more than two years. That’s a huge rise when you consider that only four months ago, they we’re trading at a little over half this.

What all this suggests to me is that, while the jobs report today is hugely important, I don’t think people will change their view on tapering unless we see some terrible figures. While many would see a good non-farm payrolls figure, say above 200,000, as the final nail in the coffin for asset purchases in their current form, they won’t be overly concerned by a disappointing figure. Clearly they’re already convinced and today’s release is just a formality.

What these people don’t seem to be considering is the impact that Syria is already having on oil prices, the impact it could have on them and what this means for the consumer. The consumer is hugely important to the US economy and with limited military strikes in Syria looking all the more likely, potentially leading to a wider conflict in the middle east, they are likely to bit hit hard by rising prices at the pump. Bernanke and the rest of the Fed will have to consider this when making the decision on whether to taper in two weeks as corresponding spike in both mortgage rates and fuel prices could choke off the recovery in its infancy. As a result, I think the Fed will hold off for now and see how this plays out and what impact it will have on the economy.

The other concerning thing is the unemployment rate. While this has fallen significantly over the last year or so, a closer look at the data really highlights the problem with this. Fallen participation rates combined with high levels of part-time and temporary hiring have hugely contributed to this drop and none of these suggest that the US is on the path to a sustainable recovery. The rate is expected to remain at 7.4% today, although this could fluctuate depending on whether we see an increase or a further drop in the participation rate.

Elsewhere today, things are looking a little quieter. In the UK, we have the release of the manufacturing production figure for July, which is expected to show an increase in activity of 0.3%. The NIESR GDP estimate for the three months ending August will be released later this afternoon and many expect another jump here, based on recent UK data which has continued to improve. We also have the German industrial production figure being released, which is expected to show a small drop in July.

Finally, we’ll hear from a couple of Fed members throughout the day, which is always worth paying attention, especially now in the lead up to the September meeting. Of particular note is Esther George’s in Omaha as it comes shortly after the release of the US jobs report.

Ahead of the open we expect to see the FTSE up 2 points, the CAC up 10 point and the DAX up 4 points.

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

668

0:18 Why today’s US jobs report is so important
1:59 What we can expect from the report
3:36 What impact Syria will have on the Fed’s decision to taper

669

[B]Caution remains ahead of jobs data[/B]

Today’s US opening call provides an update on:

[ul]
[li]Caution ahead of US jobs report;
[/li][li]Recent data encouraging, longer term mixed;
[/li][li]Unemployment key, headline figure deceiving;
[/li][li]Speeches from Fed members followed closely ahead of September meeting.
[/li][/ul]

We’re seeing a lot of caution in the markets this morning, with European indices and US futures trading relatively flat ahead of the US jobs report.

It’s not unusual to see traders more cautious in the hours before the jobs report is released. However, today’s report is one of the most hotly anticipated in a long time, coming less than two weeks before the September FOMC meeting, which means we’re likely to see even more caution today.

Today’s non-farm payroll and unemployment figures could prove decisive when the FOMC meet in two weeks. The Fed has repeatedly claimed that it will only taper if the economy improves in line with their forecasts, which I’m not convinced it has.

The recent data out of the US has been more encouraging, with consumer confidence surveys, manufacturing and services PMIs, and employment figures all improving. That said, over the course of the last few months, the data has been more mixed, which already suggests there’s no evidence of a sustainable recovery.

In terms of the labour market, which the Fed has a particular focus on, while we have seen improvements in some of the headline figures, the breakdown of these are not quite as positive. For example, the unemployment rate fell to 7.4% last month, which equates to a 0.9% drop in a little over a year. However, at the same time, the participation rate has fallen rapidly which really flatters the headline figure. Also, the number of people being hired on a temporary basis has grown, which isn’t sustainable as these would be easily let go should the economy take a turn for the worse.

There’s also issues around the number of hours worked by employees, which is coming down as firms hire more staff on a part-time basis. This is not of huge benefit to the economy as consumer spending is a big contributor to GDP and if people’s disposable income is being hit as a result of not working full time, they don’t spend and the economy suffers.

These are the details that are going to matter most when the data is released this afternoon as this is what the Fed is going to be looking at, rather than just the headline figures.

The impact that the figures have will be interesting this afternoon. To a certain extent, Fed tapering in September is priced in, with US 10-year Treasury’s rising above 3% yesterday for the first time in two years. Unless we see a terrible jobs report today, with the non-farm payrolls figure falling below 150,000 and unemployment rising, I don’t think the markets will change their view on tapering. Therefore we could see yields creep higher and the dollar rally.

In terms of the equity markets, they have responded quite positively to improving fundamentals recently, which suggests they’ve come to terms with tapering and have moved on. That said, a terrible figure today could also prompt a rally if it’s taken to mean that tapering will begin later.

We should also keep an eye on any speeches from Fed members today, as the Q&A sessions will tend to focus on monetary policy, in particular, asset purchases. Charles Evans is due to speak before the jobs report is released in South Carolina. After that, we’ll hear from Esther George, a voting FOMC member, in Omaha, who will speak after the jobs report so could provide some post jobs report insight.

Ahead of the open we expect to see the S&P flat, the Dow down 18 points and the NASDAQ up 1 point.

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

670

[B]Focus on Syria and the Fed this week[/B]

Today’s UK opening call provides an update on:

• Syria to dominate as Congress returns from summer break;
• Tapering less likely after poor jobs report on Friday;
• Asia boosted by data, Japans winning Olympic bid and Australian election.

Speculation over whether the US will lead a military response against Syria and the Fed will taper in September is likely to drive markets this week, with the economic calendar looking extremely thin.

The Fed has been a key driver in the financial markets over the last five years or so, with low interest rates, forward guidance and three quantitative easing programs being hugely influential on investors decision making. Right now though, as we approach the September meeting, when many expect the Fed to announce its first tapering of its third QE program, investors are focused more on Syria and whether Congress will vote in favour of a military response against the Assad regime, despite not having the full backing of the UN.

Congress returns from its summer recess on Monday and will immediately begin discussing whether a limited military strike is warranted based on the evidence collected by US officials in relation to a chemical attack carried out against the rebels. A decision on the matter is not expected straight away, although comments are likely to leak out to the media throughout the week which should provide some indication as to how both the Senate and House will vote. It is worth noting that a no vote won’t necessarily put an end to the matter. Obama can still act without the approval of Congress if he believes it’s the correct response.

While Syria is likely to be the biggest driver of financial markets again this week, next week’s Fed meeting is also going to have a significant impact as well. Friday’s jobs report could not have been much worse, with August’s figure coming in below expectations, both June and July’s figures being revised significantly lower and the unemployment rate falling due to a further drop in the participation rate to 1978 lows.

The market consensus in the lead up to the report was for tapering in September but now it’s pretty much a coin toss. For me, the Fed can’t possibly reduce its purchases now when the economy is struggling to get going, the labour market is only showing small signs of recovery and the US is facing a potential conflict in Syria and debt ceiling discussions in the next couple of months.

Things were much more positive in Asia over night. Data out over the weekend showed China’s trade surplus rising to 28.6 billion in August, up from 17.82 billion the month before. This was driven by both a jump in exports, up 7.2%, and a slowdown in imports, up only 7%. Chinese inflation remained low in August, at 2.6%, which is significantly below the PBOCs 3.5% upper boundary, meaning any tightening of monetary policy remains unlikely, while at the same time the government can continue with its targeted stimulus program without being concerned about the inflationary impact.

Japanese second quarter growth was revised to 3.6% on an annualised basis, compared to an initial reading of 2.6%. “Abenomics” has certainly had its critics this year, but figures such as these are very difficult to argue with. The first real test of this will come when Prime Minister, Shinzo Abe, carries out the “third arrow” which is economic reforms, starting with the unpopular sales tax which many believe could derail the recovery.

Japanese markets weren’t concerned about this over night though, after finding out that Tokyo had been chosen to host the 2020 Olympic Games. The Nikkei is up more than 2% on Monday, boosted by the strong data, the winning Olympic bid and further weakness in the yen, with the dollar temporarily rising above 100 against it over night.

Finally, Australian markets were boosted over night by the election result, which saw Labour leader Kevin Rudd concede to Conservative leader Tony Abbot. Abbot has vowed to cut taxes, including an unpopular tax on carbon emissions and a mining tax, as well as provide some much needed fiscal stimulus, while looking to looking to cut government spending and reduce the country’s debt. This mammoth task proved popular with the Australian public and clearly equally popular with the markets, with Australia’s main index rising more than half a percentage point over night.

Ahead of the open we expect to see the FTSE up 15 points, the CAC up 6 point and the DAX up 21 points.

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

671

The usual comedown following the first week of the year, as the markets digest the raft of data recently released. Top of the agenda is likely to be the ongoing outlook for Fed tapering given the impending proximity of the FOMC meeting on 17-18 September. Given this focus, we are looking towards the weekly unemployment claims figure from the US as the big ticket item. Meanwhile, it is the UK’s turn to focus upon the jobs market, with both the claimant count and unemployment rate highlighting forward guidance prospects going forward. In Asia, the release of trade balance data out of China will most likely take the headlines as markets watch to see if import and export figures pick up. This will be highly relevant for the result of the Australian elections, where the economy will no doubt figure as a main driver. Finally, the New Zealand economy has a busy week, with an RBNZ monetary policy statement likely to steal the headlines on Thursday.

[B]US[/B]

The release of somewhat mixed employment data recently has provided markets with ever more convoluted opinions regarding whether the Federal Reserve will taper at the September meeting. Given the potential impact tapering will have upon the markets, we are expecting the unemployment claims figure to represent the most notable release of the week. Apart from that, the retail sales and UoM consumer sentiment figures will play a role towards the back end of the week.

The release of key jobs data was expected to provide markets with a greater sense of direction to start the month. However, mixed signals have further convoluted market perceptions of whether asset purchases are likely to be tapered at the upcoming FOMC meeting. One thing is clear, the markets are likely to become ever more volatile as we approach the meeting, especially with the release of any key data that could affect the decision making process.

It is for this reason that I expect the release of the weekly unemployment claims figure to be watched closely on Thursday. The market expectation is for an increase to 332k from the 323k figure last week. Overall this data release has been on a clear downward trajectory and thus supporting of a potential tapering scenario. The employment data has been weakening over the past two weeks and thus a rise would not be unexpected.

The second notable release comes on Friday with the retail sales figure which is perceived by many as one of the core barometers to economic health. The importance of retail sales comes from the ability to fully understand the perception of everyday people. Where there are increased sales, we can attribute some of this to a better outlook for future wages, economic and inflationary conditions. The expectation is for a rise from 0.2% to 0.5% and any significant deviation from this figure is likely to drive the markets into fairly volatile grounds.

Lastly the preliminary University of Michigan consumer sentiment figure is also due out of Friday, with markets expecting a rise from 82.1 to 82.6. This indicator is tied closely to the retail figure, yet is more of a qualitative measure of a consumers outlook rather than solely the quantitative purchasing portrayed in the retail sales. The failure of this figure to justify expectations over the past months is no doubt worth noting, with 5 of the last 6 releases falling short of market forecasts. Thus I expect this figure to fall short yet again, with markets likely to tie such an event to potential weaknesses in the tapering story.

[B]UK[/B]

A quiet week for the UK after recent indicators pointed to impressive strength within the region. The major event of the week is no doubt the claimant count change and unemployment rate announcements owing to the association with forward guidance provided a month ago.

The claimant count change represents the UK’s version of the non-farm payroll and provides a more clear and granular picture of changes within the jobs market than the headline unemployment rate. The market expectation is for a somewhat more moderate reduction in claimants, with a fall of -21.2k expected after last month’s 29.2k fall. Despite representing a rise, this figure would not necessarily be seen as a negative should it occur, given it would still be the second highest monthly reduction since May 2010. However, given the recent trend of this figure beating expectations, along with very positive readings coming out of the UK, I am expecting a strong performance in this figure on Friday.

The unemployment rate is now one of the core indicators after Mark Carney set forward guidance to be linked with the attainment of 7% unemployment last month. Unfortunately for the markets, it is also one of the least volatile figures and thus is not necessarily the most interesting to watch. In line with this, the markets are expecting the rate to remain at 7.8% for the fifth consecutive month. This is likely to be the case, however any change in this figure will be highly notable owing to its link with potential interest rates in the future.

[B]Eurozone[/B]

A very quiet week in the eurozone, where markets have little to sink their teeth into. The one event of note comes in the form of the industrial production figure for the eurozone as a whole, due out on Thursday. This figure is worth looking out for owing to the importance of the manufacturing sector throughout some of the dominant eurozone nations. Market expectations point towards a disappointing figure of -0.1% after last month’s 0.7% growth.

[B]Asia & Oceania[/B]

The main event of the week out of Asia is likely to be the Chinese trade balance figure, due on Monday. The importance of China cannot be overstated in the context of the global economy, with almost every major open economy dependent upon the country for exports or imports. Subsequently, the release of the trade balance figures will provide clarity over whether international activity is truly picking up in the region. Expectation is for a rise from 17.8 billion to 20.3 billion, yet it is likely to be the separate import and export growth figures which will provide a better picture.

In Japan, minutes from the last monetary policy meeting at the BoJ are likely to take precedence, with people seeking direction after a somewhat uninspiring time for the Asian markets. There continues to be significant threats to the stability of the Japanese economy, with the debt/GDP ratio above 200% and a government with runaway costs associated with the Fukushima disaster amongst other things. Attention should be paid to the minutes for any clues as to whether there would be a willingness to raise the current ¥70trillion annual asset purchase scheme. There are clearly bills to pay and with doubts surfacing about the ability of Shinzo Abe’s third arrow, there is a potential that monetary policy will fill that gap.

In Australia, the focus will be firmly centered upon Saturdays election showdown between current incumbent Kevin Rudd and opposition leader Tony Abbott. Despite the ability of the ruling labour party to keep the economy clear of recession throughout the 2008-13 period, it seems that voters are ready to make a change with a view to avoid the seemingly impending fate of a prolonged slowdown in the country. A widely publicised shift in China towards domestic consumption and service industries means that the future no longer rests upon the Australian shoulders to such a degree. This perception of lowered demand is likely to impact export prices and thus a seismic shift is being touted by Rudd towards a less commodity focused economy. This does not seem so popular with the voters, who appear to believe an appointment of the historically unpopular Tony Abbott could delay or avert such a downturn.

Finally, a big week for the New Zealand economy sees the RBNZ release the latest interest rate for the coming month on Wednesday. There is little expectation for a rate cut, with the current 2.50% level having held since January 2011. However, the desire within the RBNZ to further devalue the NZD is undeniable and for that reason we will be watching very closely for the accompanying statement for any dovish tones that have been a feature of RBNZ releases throughout 2013.

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

672

[B]Risk aversion builds ahead of Congress vote on Syria[/B]

Today’s US opening call provides an update on:

[ul]
[li]Europe lower despite strong session in Asia;
[/li][li]Risk aversion builds ahead of Congress vote on Syria;
[/li][li]Traders wary ahead of FOMC meeting next week.
[/li][/ul]

It’s been a mixed start to the week in the financial markets, with stocks in Asia trading higher off the back of some strong economic releases, while European indices are mostly in the red in what has been a very quiet morning.

The week got off to a good start over the weekend, with the release of the Chinese trade balance data, which showed the surplus rising to $28.6 billion in August. The increase was driven by a 7.2% increase in exports, which suggests external demand is on the rise again as the economies of the US and Europe begins to recover.

Another positive from China was the inflation figure, which showed prices rising by 2.6%, in line with expectations. This is still well below the central bank’s upper limit of 3.5%, which reduces the odds of monetary tightening by the PBOC in the short term, while giving the government room to continue with its targeted stimulus efforts without being concerned about the inflationary impact.

It was an equally positive session for Tokyo, which was basking in the glory of being awarded the 2020 Olympic games. Research showed that the Olympics should add around 0.5% to Japanese GDP, with a number of sectors feeling the benefit. We saw a similar impact in the UK following the London Olympics, with the economy climbing out of recession to grow 0.9%. Since then the economy has not fallen back into recession and has instead gone from strength to strength.

Obviously the Olympics won’t come around for another seven years, but preparation begins straight away so the impact on the economy between now and then, for example in the construction sector, will be very welcome. This could bring about additional support the economy, which is already in recovery mode following the appointment of Shinzo Abe as Prime Minister. GDP figures released over night showed the economy growing by 3.8% on an annualised basis in the second quarter, an significant upward revision on the original 2.6% estimate.

This week the focus is going to be predominantly on the US, where Congress is due to reconvene following the summer break to discuss the potential for military strikes against the Assad regime. While there is no hard evidence linking Assad with the use of chemical weapons last month, hence the lack of support for action from both Russia and China at the UN, President Barack Obama believes there is sufficient evidence to suggest beyond all reasonable doubt that Assad is responsible.

If Congress supports Obama’s call for military action, which looks likely after House Speaker, John Bohner confirmed his support for a response, air strikes could begin as early as this week. In terms of how this effects the markets, in the lead up to the decision and probably shortly after, we’re likely to see a lot of risk aversion, as we’re seeing this morning. However, historically, following limited military reaction from the US, the markets have rallied as the uncertainty fades.

Also in focus will be the Federal Reserve, following the release of the extremely disappointing jobs report on Friday. The figures have thrown into doubt something the markets had pretty much priced in, tapering in September. A terrible jobs report combined with a potential conflict in Syria and debt ceiling negotiations in the coming months is surely not the backdrop that the Fed was looking for to begin scaling back its asset purchases.

While there are few Fed members scheduled to talk this week, we could still get comments between now and the meeting next week, which will undoubtedly have an impact on the markets. Today we’ll hear from John Williams, a dovish non-voting member of the Fed. While his opinion doesn’t necessarily count, he could provide some insight into what the consensus is among the Fed following the jobs report on Friday.

Ahead of the open we expect to see the S&P up 3 points, the Dow up 22 points and the NASDAQ up 9 points.

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

673

James Hughes discusses the effect of Tokyo’s Olympic announcement on the markets, Japan GDP, Chinese CPI and Tapering talks for this week.

674

Three FX highlights for this week:
0:12 - 1. Congressional vote on military action in Syria
1:24 - 2. Fed speeches ahead of next week’s FOMC meeting
2:13 - 3. US retail sales

675

[B]Investors buoyed by prospect of no military action in Syria[/B]

Today’s UK opening call provides an update on:

• Investor sentiment boosted by the prospect of no US military strikes in Syria;
• Oil prices retreat on reports that Damascus could put its chemical weapons stock under international control;
• Another strong batch of Chinese figures boosts equity markets.

Reports that a US military strike in Syria could be avoided provided a significant boost to equity markets over night, with major indices in both the US and Asia trading comfortably in the green and European futures pointing to a similar open.

Until now, a US-led military response against the Assad regime, for the suspected use of chemical weapons against its own people, looked almost inevitable. However, reports that Syria has welcomed a suggestion by Russia for the government to put its stock of chemical weapons under international control could be a game changer, although at this stage there has not been confirmation that Assad would approve such a move.

If these reports turn out to be correct, it would significantly reduce the chance of a military strike being agreed in Congress this week and make it very difficult for US President, Barack Obama, to act without Congressional support. At the very least, these reports should severely delay any strike in Syria, buying the Assad regime even more time to prepare for such a strike.

The prospect of strikes in Syria, potentially leading to the involvement of other countries in the region, has weighed heavily on risk appetite over the last couple of weeks, with investors pulling money out of stocks and other risky assets in favour of safe havens, including gold.

Oil prices retreated over night on hopes that military action in Syria could be avoided. Syria itself doesn’t actually produce much oil at all, however the countries around it do. If things escalate as a result of a US military strike, which could easily happen, the supply of oil would most likely be affected, leading to a significant ramp up in the price. The recent spikes in oil have simply been in anticipation of such a move.

With the economic calendar looking pretty light for the rest of the day, focus is likely to remain on whether Damascus is willing to accept the Russian proposal, and whether this would convince the US not to carry out the military strike. We could therefore see some volatile markets, as officials comment on the reports, aided by the lower trading volumes which we are still seeing as the summer draws to a close.

Comments from Fed officials will also have an impact on the markets between now and the FOMC meeting next week. As always, any insight into the Fed’s thinking on the economy will be welcomed, especially following that terrible jobs report on Friday, as will opinions on whether Syria or the debt ceiling will have an impact on the Fed’s decision to taper.

European futures received a significant boost shortly before the open, following the release of another batch of strong Chinese figures. Industrial production increased by 10.4% in August, ahead of expectations and the biggest increase since March last year. Retail sales were also better than expected, rising 13.4%, while fixed asset investment was up 20.3%, slightly ahead of expectations.

The recent improvement in the Chinese data clearly shows that the targeted stimulus being carried out by the government is having the desired effect. Whether we’ll continue to see these improvements is another matter altogether, however these early signs are encouraging.

Ahead of the open we expect to see the FTSE up 30 points, the CAC up 30 point and the DAX up 66 points.

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

676

0:09 European indices higher, while commodities move lower
0:36 Syrian conflict less likely as Kerry proposal creates possible resolution
2:20 Signs that China is back on track, with strong data overnight

677

[B]Risk aversion subsides as US explores diplomatic solution[/B]

Today’s UK opening call provides an update on:

• US and Asian markets rally as expectations for diplomatic solution in Syria grow;
• Obama delays vote in Congress, as diplomatic solutions explored;
• Gold and oil retreat as markets begin to price in no military strikes;
• UK in focus this morning, with unemployment figures being released.

European indices are expected to open relatively flat on Wednesday, as a diplomatic solution to the suspected use of chemical weapons by the Assad regime begins to look more and more likely.

While Obama is continuing to push for military action against Assad, in a bid to deter any future use of chemical weapons by the Syrian President or anyone else, he will now find it very difficult to get the congressional approval that previously looked likely. Americans, like their counterparts in Britain, are very reluctant to get involved in Syria, with memories of the Iraq war still fresh in people’s minds. If a solution exists that involves Assad handing over his chemical weapons to the international community, they’re likely to take it.

The only question now is whether Assad will go along with the proposal, or whether this is, as some suspect, just a tactic to delay the vote in Congress. Whichever it is, the markets are liking it. The news that Obama has asked Congress to hold off on voting on military action spurred on gains in US and Asian equities over night.

Gold and oil both fell yesterday on news that a military response from the US is looking more unlikely. Gold has benefitted from its safe haven status in recent weeks, while oil prices have spiked on fears of a wider involvement in the conflict in the middle east. Gold may now become more of a focus for those trying to predict whether the Fed will taper come September.

An easing of oil prices will certainly be welcomed by those at the pump, who already complain about sky high fuel prices. Further declines will also be a huge benefit to western economies, with a $10 rise in Brent crude, as seen between the end of June and the end of August, equating to a 0.5% loss in GDP. This could potential derail any recovery currently being seen in countries such as the US and the UK, where the consumer and businesses would be hardest hit.

Today we could see a little more focus on the economic calendar, with a few important pieces of data being released. First up it’s over to the UK, where the unemployment rate will be released alongside the change in the number of people claiming unemployment benefits. The latter has been on the decline since the end of last year, although it’s had little or no impact on the unemployment rate. Looking at these figures it’s no surprise that Bank of England Governor, Mark Carney, believes it will take three years for the rate to drop to 7%. Another 22,000 people are expected to have stopped claiming unemployment benefits in August, although once again, the unemployment rate is expected to remain at 7.8%.

Over in the US, we have a few small economic releases, including the MBA mortgage applications, wholesale inventories and the EIA crude oil stocks change. The main focus this evening was originally going to be on the vote in Congress, but with this now delayed, we could be in for a quiet evening.

Ahead of the open we expect to see the FTSE down 2 points, the CAC up 2 point and the DAX up 11 points.

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

678

[B]UK unemployment rate falls as recovery gathers pace[/B]

Today’s US opening call provides an update on:

[ul]
[li]US futures flat as investors treat developments with scepticism;
[/li][li]Split opinion on Fed tapering also preventing markets from rallying;
[/li][li]UK unemployment falls as recovery gathers pace;
[/li][li]Carney’s message on low interest rates not helped by fall in unemployment rate.
[/li][/ul]

Most European indices are trading higher on Wednesday, while US futures are pointing to a relatively flat open.

Investors are clearly relieved at the prospect of no US-led military strike being carried out against the Assad regime, but as we see today, they’re not getting too carried away with it. The reports are clearly being treated with a degree of scepticism, with people fully aware that things can escalate again rapidly, should Obama convince lawmakers that a military strike is still necessary or Assad refuse to hand over his chemical weapons to the international community.

There remains a lot of uncertainty in the financial markets at the moment and as we know, the markets hate uncertainty. This is not just centred around the conflict in Syria, opinions are still split on whether the Fed will scale back its asset purchases when it meets next week. This has been a major driver in the markets over the last year and will continue to be until the middle of next year when the Fed plans to bring it to an end. You get the feeling though that the first taper is the most important though, which is why so much is being made of it. I don’t expect so much to be made of future meetings once the first reduction is announced.

As for today, we could be in for another quiet session, with traders remaining on red alert for further progress on the Syria front. So far, the European session has been quite positive on the economic data side of things.

The only noteworthy release this morning came from the UK and further confirmed that the recovery is well underway. The number of people claiming unemployment benefits in the UK fell for a tenth consecutive month in August, dropping 32,600, well ahead of expectations of 22,000, while July’s figure was also revised lower to 36,300.

That led to the first drop in the unemployment rate in four months. This may lead to fears among some that the unemployment rate could fall to the Bank of England’s 7% threshold faster than Governor Mark Carney suggested. Questions have already been raised about whether three years is a realistic timeline and this may prompt some to factor in an earlier rate hike.

That said, it’s been 10 months since the unemployment rate first fell to 7.8%, so maybe three years for it to fall to 7% isn’t that unrealistic. A number of UK companies still have a massive problem with productivity and these are the issues that are likely to be addressed first, before they begin hiring again. This is the message that Carney is struggling to get through to the markets and today’s drop in the unemployment rate may not help his cause.

Ahead of the open we expect to see the S&P down 1 point, the Dow flat and the NASDAQ down 6 points.

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

680

0:10 Markets flat as Syrian fears remain
1:24 Congress discussions likely to delay debt limit discussions
2:48 UK jobs data beats expectations

681

[B]Risk appetite on the rise as odds of US strikes slashed[/B]

Today’s UK opening call provides an update on:
• Most indices trade higher as odds of military action in Syria drop;
• US jobless claims watched closely ahead of next week’s FOMC meeting;
• Mario Draghi likely to talk down the euro when he talks in Latvia;
• Markets pricing in another RBA rate cut after poor employment figures.

With the odds of a US-led military response in Syria now being slashed by the day, risk appetite is on the rise in financial markets. Overnight we saw most US and Asian indices trading in positive territory and we’re expecting a similar story when the European session gets underway this morning.

We could have seen gains across the board in the US, had it not been for the mass disapproval of Apple’s new handsets, in particular the “cheaper option” that is cheap in quality but far from that in price. Apple has a big weighting in the Nasdaq, so it was no surprise to see a 5.4% drop in the stock leave the index in negative territory for the day.

The news that Syria is willing to give up its chemical weapons to the international community to be destroyed and that the US is willing to consider this has provided a major boost to the markets. As we can see by the approval ratings in most countries, people do not want another war and this provides an alternative. Obviously, it’s unlikely to be plain sailing from here, with complications arising along the way, but this is an encouraging development from last week.

With Syria no longer posing a threat, for now, focus can switch back to the economic data and more so, next week’s FOMC meeting. With this now at the forefront of traders’ minds, today’s weekly jobless claims figure is going to be watched closely for any signs that the US recovery is stalling.

Given the consistently low figures we’ve seen here this year, I very much doubt we’ll see a spike in this figure today. On top of that, it would also take substantial revisions to previous figures to further convince the markets that the Fed will not taper next week, following the poor jobs report on Friday. As it stands, another solid figure around 330,000 is expected, which should leave the markets very much split on when tapering will begin. That said, I’d say there’s still a slight majority that favour September tapering, although the gap is now much smaller.

On the European side, there are a few events that have the potential to shake up the markets today. We’ll hear from Mario Draghi at 12.40 BST, when he speaks at the Bank of Latvia’s Economic Conference in Riga. Draghi could provide further insight into the ECBs forward guidance here but that’s very unlikely. Instead, he’ll probably use this as an opportunity to warn of potential risks to the recovery and try and talk down the euro some more.

We also have the ECB monthly bulletin and the UK inflation report. Both of these are unlikely to move the markets, although with them being focused around two of the most important central banks, you never know, so it’s worth keeping an eye out for these this morning. In terms of data, eurozone industrial production is the only noteworthy release this morning and is expected to show a 0.1% decline in activity in July, compared to a year earlier.

Things are going from bad to worse for Australia, where data released over night confirmed the unemployment rate rose to 5.8%, as expected, while the number of fulltime and part-time staff continued to plummet. The number of people employed in Australia was expected to rise by around 10,000, but this instead swung significantly in the other direction, with a drop 10,800 instead being reported.

The Reserve Bank of Australia said a couple of months ago that while the economy may continue to suffer in the short term, things should improve as the year goes on. This is not looking like the case at the moment. Obviously it’s still early days, but it would appear that the improvement in the Chinese economy is not rubbing off on Australia. Based on the reaction in the fx markets, where the Aussie fell almost 100 pips against the dollar, it seems as though traders are now pricing in another rate cut from the RBA before the end of the year.

Ahead of the open we expect to see the FTSE up 17 points, the CAC up 14 points and the DAX up 33 points.

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

682

[B]US futures flat ahead of key jobs data[/B]

Today’s US opening call provides an update on:

[ul]
[li]US futures flat ahead of key jobs data;
[/li][li]Eurozone industrial production falls 2.1% in July;
[/li][li]Saudi offer to support oil output has minimal impact;
[/li][li]Gold breaks through significant support.
[/li][/ul]

US futures are flat on Thursday, ahead of the final release of the weekly jobless claims before next week’s FOMC meeting.

New jobless claims are expected to have remained low again last week, at 330,000. Throughout the course of this year, the figure has remained comfortably below 350,000 on the majority of occasions, which certainly points to a changing of attitude among employers, who no longer have their finger on the redundancy button.

That said, there is still a problem in the US labour market in that hiring is still weak, hence the plummeting participation rate as people give up the hunt for work. As a result, today’s jobless claims figure is unlikely to have too major impact on people’s views on when the Fed will taper, unless we see a complete collapse in the data, including significant revisions to past figures.

The morning has been relatively quiet so far, with a few pieces of lower impact data being released. The only noteworthy release this morning was the eurozone industrial production figure which showed activity falling 2.1% in July, well below expectations of -0.1%. The recent recovery in the eurozone meant people paid little attention to this release as it’s probably just a one-off. If we continue to see more poor data out of the region, people will start to sit up and take notice more.

Oil prices are on the rise again on Thursday, despite a pledge from the Saudi oil minister to support the supply of oil in the event that geopolitical issues disrupt the supply from other countries. Obviously, he was referring to the potential conflict in the middle east, with Iran threatening to bomb Israel if the US carries out a military strike against the Assad regime.

Concerns around this have eased in the past couple of days, along with the oil price, which is why the reaction to the comments has been minimal. Should we see further escalation in this conflict, this pledge could help limit any significant upside moves in oil prices, although it’s unlikely to stop it entirely.

Gold prices retreated again today, smashing through a massive technical support level around $1,353 to reach lows of $1,338. This move clearly highlights two things: Firstly, traders are no longer overly concerned about a broader conflict in the middle east, and secondly, the market is continuing to price in a September tapering, despite woeful jobs figures last week.

Ahead of the open we expect to see the S&P flat, the Dow up 2 points and the NASDAQ up 1 point.

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

683

0:33 US weekly jobless claims in focus ahead of FOMC meeting
1:53 Eurozone industrial production figure disappoints
2:38 Oil pushes higher despite comments from Saudi Oil Minister
4:21 Gold breaks through key support

684

[B]Markets buoyed as Larry Summers leaves Fed race[/B]

Today’s UK opening call provides an update on:
• Syrian military action unlikely despite UN report release today
• Markets looking towards Wednesday FOMC announcement
• Larry Summers withdraws from race to be Fed chairman

Market expectations begin to climb today as we enter the week which many within the city perceive will mark the beginning of Federal Reserve tapering. As the worries surrounding Syria subside somewhat, it appears that the anxieties are dissipating, only to be shifted towards the US sequestration and debt limit, due to come into play at the beginning middle of October respectively. However, it seems that the markets do not have this in mind quite yet, with tapering seemingly tapered in, and Syrian conflict seeming distant, the week looks set to begin in a very strong way.

President Barack Obama yesterday used an interview with ABC to discuss some of these main topics, in particular the ongoing Syrian issue and the potential for the Senate to come to some form of amicable solution during spending and debt discussions. The market anxiety over Syria has certainly subsided in response to the Geneva agreement, with the price of Brent crude retracting over $40 from last weeks Monday high of 11613.

Today marks the release of the UN report into the Syrian chemical attack and as such has the propensity to bring the topic back to front and centre. The report is widely expected to provide details to prove that the attack did occur and what exact toxin was used. However, it is likely to fall short in naming the exact perpetrator of the offence and thus would avoid the one key detail that would facilitate the ratification of US claims that Assad carried out the attacks. Irrespective of the findings, the pathway towards any attacks now seems increasingly convoluted where Russia has seemingly used John Kerry’s off the cuff remarks to provide a situation where the Syrian regime is allowed the room to enter into a cat and mouse scenario of partial weapons declaration seen in Iran and North Korea.

The major topic of the week and main driver of market volatility is likely to be the FOMC where the decision to trim back on the volume of asset purchases is widely expected to be taken. The ability of the economy to show sufficient signs of improvement within the jobs markets has been a core driver of expectations and the trends appear to point towards the economy being just about accommodative to such a move. Ben Bernanke set out the original timeline in reference to an altogether removal of QE around the 7% level of unemployment, later speculating that it would occur around mid-2014. Thus with the current level at 7.3% and markets seemingly positioned for such a cut, it is likely that it will come on Wednesday.

In the lead up to Wednesdays decision, interest within markets is likely to shift somewhat towards the specific factors of any taper. The somewhat unknown nature of the process makes market responses more difficult for the Fed to gauge, and for that reason markets are expecting to see a somewhat moderate reduction between $10-15 billion.

Furthermore, markets will be looking towards where exactly such reductions are likely to come from, where I expect to see a proportionately larger propensity to reduce treasury purchases ahead of the MBS element. Ultimately, there is much talk of the taper having been factored into the markets already, however this price discovery process is likely to continue throughout the early part of the week. I some ways the decision to not alert is likely to have a more profound effect upon the markets than a taper.

Last night saw the withdrawal of Larry Summers from the candidacy for the upcoming Federal Reserve Chair position despite recent rumours that he was expected to be appointed later this week. The widely hot-tipped favourite was clearly Obama’s favourite candidate and thus this acts as yet another blow to the president at a tough time for the White House. Summers was an unpopular choice for many, given his hand in the creation of the Commodities Futures Modernization Act of 2000, which prevents the regulation and oversight of derivatives products. With the focus upon the dangerously unregulated CDO market as one of the core drivers of the 2008 crash, some see Summers as the main man behind the crisis.

The focus will now shift towards alternate candidates, of which Janet Yellen is no likely to assume the mantle of market favourite. It is clear that Yellen is less aligned with Obama and would thus provide a more independent opinion rather than the White House puppet that Summers was widely expected to be.

Looking ahead to the day’s economic releases, there are no tier one events to note, with the majority of focus expected to be around the eurozone and US regions. The morning sees ECB governor Mario Draghi take to the stage once more with the rhetoric likely to remain around a ‘negative bias’ and particularly dovish monetary outlook. Later in the day, the emphasis will shift to the US where the Empire State manufacturing index and industrial output figures will drive markets.

European indices are expected to open higher, with the FTSE +70, CAC +53.5 and DAX +120 points.

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