Forex research

Commercial Content Analysts
1023

Today’s UK opening call provides an update on:

• FOMC minutes spark fears of premature rate hike;
• Chinese manufacturing contraction gathers pace in February;
• Eurozone PMI readings in focus this morning;
• Plenty of US data being released later.

It could be a rough day for the markets on Thursday as a double whammy of hawkish Fed minutes and another woeful manufacturing PMI from China crush investor sentiment overnight. The FTSE is currently seen opening 45 points (0.67%) lower, the CAC 34 points (0.78%) lower and the DAX 91 points (0.95%) lower.

The FOMC minutes, released yesterday evening, were largely as we expected. They showed officials supporting the continuation of tapering, despite the recent blip in the economic data which they agree has probably been distorted by abnormally bad weather. What wasn’t expected was for some members to call for a rise in the short term interest rates as early as the middle of this year.

It’s worth stressing at this stage that this outcome is extremely unlikely as the Fed, as a whole, would not want to risk choking off what recovery we have seen so far unless they absolutely have to. With inflation currently well below the Fed’s target, I see no obvious reason why this would even be considered. Therefore the reaction in the market is once again just overdone and will probably correct itself in the coming days.

However, fears of a hard landing in China are not likely to go away very quickly, especially when key surveys like the HSBC manufacturing PMI, show a hugely important sector for the economy contracting at a faster rate than expected. The February number fell to 48.3, following its surprise move into contraction territory only last month. In January, this was the straw that broke the camel’s back and prompted huge capital outflows from emerging markets as investors panicked about an emerging market crisis this year due to Fed tapering.

This has since calmed down and today’s figure is unlikely to spark a similar reaction, but as we’ve seen, it will weigh on investors sentiment somewhat, at least for now. This wasn’t helped by reports over night that the People’s Bank of China sucked another 60 billion yuan out of the money markets. In all likeliness, this has probably just offset the cash it injected into the markets just before the Lunar New Year, but the timing was unfortunately not great.

The distortions in the economic data around the Lunar New Year could potentially be responsible for the sudden drop in the manufacturing figures, but we won’t know this until the next figures are released in March. For now, we may just see a little more caution from investors, who have seen how quickly one poor number can escalate into significant risk aversion.

Flash manufacturing and services PMIs for Germany, France and the eurozone will be the key focus this morning, with most of the releases expected to point to a slight improvement, or in the case of the eurozone manufacturing PMI, remain unchanged but comfortably in growth territory.

The French figures could surprise to the upside after GDP data last week showed that not only did country grow faster than expected in the fourth quarter of last year, it never contracted in the third quarter as we previously believed, meaning the threat of another recession was never really there. Positive news like this, despite technically being very small, can have a significant impact on confidence, as we saw in the UK last year when it just averted a triple dip recession and the double dip was revised away.

There’s also plenty of data being released in the US later, including a couple of its own manufacturing surveys, weekly jobless claims and the CPI inflation data. In and amongst all that, we do have one more eurozone figure being released, the CB consumer confidence figure, which is expected to improve slightly to -11.25 from -11.7, showing that people are slowly becoming less pessimistic about the outlook.

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

1024

[B]US futures lower as PMIs further weigh on sentiment[/B]

Today’s US opening call provides an update on:

[ul]
[li]Chinese manufacturing PMI further weighs on sentiment;
[/li][li]Eurozone PMIs fail to lift investors;
[/li][li]US inflation data, jobless claims and manufacturing PMIs in focus today
[/li][/ul]
US futures are seen opening lower on Thursday, after Chinese and eurozone PMIs added to the negativity in the market, which was initiated by the release of the FOMC minutes yesterday. The S&P is currently seen opening down 2 points, the Dow down 14 points and the Nasdaq down 6 points.

The Chinese HSBC manufacturing PMI caused quite a stir in the Asian session over night and has continued to weigh on sentiment during the early part of the European session. It was move into contraction territory, below 50, of this figure in January that was the catalyst for the major sell-off in emerging market currencies, which sparked significant risk aversion in the markets.

The figure fell even deeper into contraction territory in February, reaching seven month lows of 48.3, and bringing back fears of a hard landing in China. I don’t think these will materialise as we had the same fears last year and the targeted stimulus effort from the government, along with an improving economy in other areas of the world, proved enough to keep growth above the minimum 7% target. That’s not to say I don’t expect growth to slow in the years ahead, but I think talk of a hard landing is premature.

The negativity was compounded this morning by a batch of disappointing PMIs from the eurozone, where only the German services PMI managed to exceed expectations. The French services PMI on the other hand slipped back to nine month lows of 46.9, which will undoubtedly raise concerns about whether the country can actually record consistent growth this year, having just avoided another recession at the end of 2013.

There plenty more data scheduled for release today, with CPI inflation data, weekly jobless claims and the manufacturing PMI all being released before the opening bell on Wall Street. The CPI inflation figure is unlikely to have much impact on the markets, with the core personal consumption expenditure index being the Fed’s preferred measure of inflation. Although that doesn’t mean the Fed, and the markets, won’t sit up and take notice if we do get a spike in the figure.

The start of tapering has brought the labour market even more into focus, with traders looking for signs that the recovery is slowing which could prompt the Fed to slow the rate of tapering. So far, poor weather has been blamed for the disappointing December and January jobs reports, while jobless claims have also been inflated at times. The numbers over the last couple of weeks have been a little better and we’re expecting this week’s to be similar at 335,000.

There’s also a couple of manufacturing figures being released today, the preliminary reading of the official manufacturing PMI and the Philly Fed manufacturing PMI. Both of these are expected to fall slightly, with the official reading dropping to 53.0 and the Philly Fed reading dropping to 8.0.

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

1025

FOMC minutes spooks investors - 00:09
Chinese manufacturing contracts again in February - 02:12
US data in focus this afternoon - 05:40

We’re seeing plenty of risk aversion in the markets on Thursday, following some disappointing economic releases and concerning FOMC minutes. Market Analyst Craig Erlam talks about why investors have responded so badly to today’s data and what about the minutes prompted the initial risk aversion.

1026

[B]UK data dominates a quiet end to the week[/B]

Today’s UK opening call provides an update on:

• European futures take positive lead from US counterparts;
• Big UK data week continues with January retail sales;
• UK borrowing expected to decline last month;
• More US housing data being released later.

European futures are pointing to a higher open on Friday, with the FTSE up 38 points, the CAC up 14 points and the DAX up 50 points, or around half a percentage point. This strong start comes following surprisingly positive sessions in the US and Asia overnight.

The US session got off to a bad start, opening lower following some disappointing PMI readings from the eurozone and, in particular, China. However, it didn’t take much to turn these losses into moderate gains, with a better than expected US manufacturing PMI reading acting as the catalyst. I think this clearly highlights the fact that the market is still generally bullish and is once again looking for any excuse to buy. The difference between this year and last though is that negative data can no longer be used as an excuse to buy as the Fed has made it very clear that tapering will continue, unless we see a significant deterioration in the data, which is unlikely.

It’s been a fairly big week for the UK, with some very important pieces of economic data being released along with the minutes from the Bank of England meeting earlier this month. While the latter turned out to be somewhat of a non-event, the data as a whole has been quite encouraging for the UK recovery. While the unemployment rate did rise to 7.2%, the number of those claiming jobless benefits fell by more than expected, with the jobless rate falling to 3.6%.

At the same time inflation fell below the Bank of England’s 2% target for the first time in 51 months, leaving them under no pressure to raise interest rates and risk choking off the recovery. Today, we have more UK data being released which could cap off what has been a pretty good week so far. UK retail sales are expected to have declined by 1% in January, which is not as bad as it sounds when you consider the huge rise in December that easily exceeded expectations. This would still be a 5% improvement on last year which clearly shows how far the UK has come in the last 12 months.

We’ll also find out how much the UK government borrowed in January, a month when borrowing usually drops slightly compared to December. This is expected to be the case again, with the number expected at around £9 billion. This number is much smaller than what we saw in the last couple of years which again highlights the fact that the economy is improving. As economic activity picks up, so do tax receipts, which means the government doesn’t need to borrow as much.

The US session later is expected to be even quieter, with the only notable economic release being existing home sales for January. Housing data in January has been heavily distorted by the poor weather and I expect this to be no different, with current forecasts pointing to a 4.3% decline in the month.

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

1027

[B]Markets rise despite disappointing UK retail sales data[/B]

Today’s US opening call provides an update on:

[ul]
[li]US future point to positive end to the week
[/li][li]BoJ minutes point to a potential increase in stimulus in the future
[/li][li]UK retail sales disappoints following increased attention
[/li][li]2 of 3 tenets of ‘forward guidance 2.0’ failed to impress this week.
[/li][/ul]
US stock futures are pointing higher today in what would be the second consecutive day in the green following on from a strong Asian session. This comes against the backdrop of a particularly bullish day for European markets, with the CAC currently testing a 5 year high at 4365 and the FTSE100 breaking to the highest level since May 2013. US futures are indicating the S&P500 will open +1, DJIA +13 points, and NASDAQ +2 points. It is the DJIA move which takes much of the headlines as markets try to put the conspiracy theorists ideas of a parallel between 1928/29 and 2013/14 to bed. Such a parallel would place us at the beginning of a more protracted bear trend. This notion will possibly only be fully allayed with the creation of a new swing high above 16200 which would also take out a key level of resistance.

Overnight, the Bank of Japan released the minutes from their last monetary policy meeting. Markets had low expectations regarding this release given the somewhat stable nature of their recent rise back into growth and positive inflation. However, the minutes showed that there were concerns regarding the pace of the current recovery seen in the region, a view which resonates with many who fail to see how Abe and Kuroda can achieve their targeted 2% inflation within the two years originally speculated. To some this meant a possible requirement to hike up the rate of asset purchases as a means to drive both growth and inflation, especially ahead of the sales tax hike in April. That being said, the minutes showed members had few worries regarding the ability of the Japanese economy to cope with the new sales tax rate given that consumption appears to be ‘front loaded’ ahead of such a rise.

The main focus of the European session has been driven by the UK, where the release of the retail sales figure drew increased attention following the updated ‘forward guidance 2.0’. Retail sales has always been key as a determinant of where the economy is going given that it reflects both current and future expectations for the everyday person from an employment, wage growth and inflation standpoint. For this reason, retail sales can be seen as both quantitative (how much are people buying) and qualitative (what are expectations of future conditions). However, it was the inclusion of consumption within Mark Carney’s newly enhanced forward guidance policy which has brought this measure to a head, providing markets with a new range of indicators to look out in addition to the CPI and unemployment rates. However, with unemployment and inflation closer to target, there will now be increased focus upon the likes of earnings growth and consumption as a driver of market volatility.

The retail sales release was ultimately somewhat disappointing, falling -1.5% from December to January. On an annualised basis, sales did rise by 4.3% compared to last year, yet this too fell short of market expectations. Given that potential interest rate increases are now in part reliant upon consumption, the rise in the likes of the FTSE100 shows that possibly the association between central bank behaviour and markets is not weakening as seemed to be the case. The shift back towards a scenario where markets take data on face value could perhaps take a little longer.

With the rise of unemployment seen this week, poor retail sales growth and a inflation/wage growth differential that means real earnings continue to fall, it is easy to see that an interest rate hike could still be some way off. That being said, signs are pointing towards a positive trend for all these measures on the whole and with the inflation rate not finally below 2%, the BoE is likely to be in no rush to begin tightening monetary policy anytime soon.

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

1028

01:04 - Markets boosted by Thursday’s US manufacturing PMI
02:53 - UK retail sales fall more than expected following strong December
04:45 - US housing market back in focus this afternoon

Market Analyst Craig Erlam talks about what’s moving financial markets on Friday, including some encouraging US manufacturing data and weaker than expected UK retail sales for January.

1030

A somewhat mixed week ahead for the global economy, following on from a largely disappointing one gone with the likes of the UK, US and eurozone all seeing a notable deterioration in their economic data. Despite this, the major indices have continued to rise, highlighting a bullish momentum that is clearly inherent in the current markets. This week the focus will be largely dominated by somewhat lesser economic releases. In the US, the main event is likely to be the preliminary Q4 GDP growth figure for 2013, which markets expect to change significantly from the advance release. In the UK, the second GDP estimate is also likely to dominate. Meanwhile in the eurozone, Friday’s CPI figure could be a major market mover should we see any change.

In Asian markets, there are very few economic releases to get into with China having no major announcements. Thus the focus will be upon Japan where the release of retail sales will be key on Thursday.

[B]US[/B]

A bit of a slower week for the US region ahead, where the major releases come in the form of [B]the consumer confidence index[/B] and the second GDP estimate for Q4 of 2013. The first of these to come around is the consumer confidence index which surveys 5000 people with regards to their assessment of both current and future economic conditions. The importance of consumer perception should not be understated given such opinions drive future decision-making of household investment. It has often been said that consumer spending makes up 70% of US GDP. Thus the strength of the consumer confidence will be key to determining where growth will be for 2014. Market estimates point towards a pullback to 80.1 from last month’s figure of 80.7. Should this occur, it would be somewhat of a disappointment given that the measure has been steadily improving and showed signs of moving towards the previous 5 year high of 81.8. That being said, given that the past two figures have majorly overshot expectations, I am hoping for another improved figure this month.

On Friday, the second estimate of the 2013 [B]Q4 GDP[/B] figure is due to be released. Ordinarily revisions hold very little interest for the markets given that they tend to move very little from the first figure. However, on this occasion market forecasters are pointing towards a heavily discounted GDP rate of 2.7% from an initial estimate of 3.2%. Should this occur, it would mean that growth within 2013 is substantially lower than previously thought and thus could contribute to a sizable shift in the markets. Much of this is likely to be attributed to lowered retail sales, which fell by -0.4% in January on a seasonally adjusted basis. As mentioned, consumer spending accounts for around 70% of GDP in the US and thus the announcement of the joint lowest retail sales growth in 18 months surely will have an impact.

[B]UK[/B]

Another quiet week ahead for the UK, where the only major release comes in the form of the second estimate of [B]Q4 GDP[/B] growth in 2013. Unfortunately, unlike the US, there is less of a shock expected on this occasion, with the revision expected to come in at 0.7%. This would be the same level of growth as that seen in the first estimate provided last month. Of course it is always worth watching out for this release as GDP growth is typically seen as the strongest all encompassing measure of economic health and prosperity out there. However, given the typically static nature of the second and final revisions of the UK GDP figure, I am not holding out for too much movement.

[B]Eurozone[/B]

A relatively busy week for the eurozone ahead, where the German Ifo business climate survey, CPI figure and unemployment rate will ensure there should be a handful of events to look out for. The first of these is [B]the German Ifo business climate survey,[/B] which acts as a leading measure of both eurozone and German economic health. The figure interestingly has a high degree of correlation with German GDP and thus it is worth watching out for as a leading indicator. Often a significant shift in this figure has preceded a substantial move in the GDP QoQ figure. This was highlighted most notably when the October 2012 business climate figure marked the start of the recovery for the region, which was confirmed by the GDP release seen in February 2013. On this occasion, we are expecting no change from last months 110.6 figure.

On Friday the [B]flash CPI[/B] figure for February is due to be released, which is certain to keep Mario Draghi on his seat. Looking back over recent announcements from Draghi and the ECB, almost everything seems to be centered upon how the current low inflation scenario is perceived. Draghi recently speculated that the inflation rate will remain low for some time, yet that there is little change of deflation anytime soon. That may be the case, yet any further reductions in this figure would certainly pile further pressure upon the ECB to act. Be that in the form of negative interest rates, an LTRO, asset purchases or alike. Either way, should the CPI measure of inflation fall any further, this would push us closer to further monetary loosening despite what has been said.

Finally, the [B]eurozone unemployment rate[/B] is also due to be released on Friday. The unemployment rate is key in the eurozone owing to the widespread employment issues seen within some of the peripheral and beleaguered nations. As such, many have seen unemployment as the final hurdle for any recovery. Despite recent reductions, the rate has failed to break 12.0% for 11 months now and few expect it to happen this month. Estimates point towards the rate remaining at 12.0% following last month’s 0.1% reduction.

[B]Asia & Oceania[/B]

A very quiet week within Asia, where the only data comes from the Japanese region. The two major releases to look out for are the Tokyo CPI figure, along with the retail sales figure. Firstly, the [B]Tokyo CPI[/B] measure of inflation is commonly seen as a reliable proxy for nationwide inflation. Given that the Japanese government came into power under an aggressive policy standpoint which was aimed at raising the country out of deflation, any measure of inflation is going to be notable. The target for the country is 2%, which remains some distance from current levels and thus it is imperative that the rate remains in ascendancy. This measure is expected to rise from 0.7% to 0.8% on this occasion, which would be in line with the need for higher inflation. However, be aware that any spike in this figure could have implications upon the outlook for inflation within the wider economy.

Finally, the [B]retail sales[/B] figure is due to be released on Friday. This is important for any major economy to ensure that consumer spending is growing and thriving. However, this release takes on additional importance with the imposition of the sales tax increase due to take place in April. Now unlike most of the major economies, Japan’s sales tax is notably low (5%), which pales in comparison to the likes of the UK, where the rate is 20%. Thus a shift from 5% to 8% should not necessarily be too much of a burden for many. However, the feeling is that the Japanese region is only just waking up from it’s economic stagnation, where growth was at a minimum and deflation was common place.

Thus the worry is that the sales tax will stifle an already fragile recovery just as it begins to gain traction. For this reason it is important to note how the consumers are preparing for the tax hike, with the BoJ recently indicating they believe consumers will approach it ‘front loaded’, making big purchases ahead of time. For this reason, markets are expecting a strong rise in this figure, from 2.5% to 3.9%.

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

1031

[B]Eurozone CPI reading brings the ECB back into focus[/B]

Today’s UK opening call provides an update on:

• Chinese housing data weighs on sentiment overnight;
• Eurozone CPI reading may pile the pressure on the ECB to act next week;
• Dovish tone from Draghi and Weidmann over the weekend suggests the ECB will act;
• German Ifo business climate survey expected to remain unchanged in February.

European indices are expected to start the week on a slightly negative note, with the FTSE seen opening 25 points lower, the CAC 10 points lower and the DAX 40 points lower.

This comes ahead of what is likely to be a relatively slow week in the markets, on the whole. There are some key pieces of data being released this week, along with other important events such as the UK inflation report hearing, but these are pretty much scattered throughout the week which means we don’t have any very busy days. That isn’t unusual for the final week of the month and I’m sure next week will more than make up for it.

The slight risk averse tone in the markets this morning has largely come from Asia overnight, where some Chinese house price data weighed on investor sentiment. There is a very real fear that the People’s Bank of China will be forced to tighten lending related to property in a bid to slow down the rise in property prices. The 9.6% annual rise in January hasn’t helped ease these fears, despite it being slightly lower than the 9.9% figure in December.

One economic release this morning that may prompt less risk aversion is the eurozone CPI inflation reading. The preliminary release showed inflation falling to 0.7% in January, well below the European Central Bank’s 2% target. Despite ECB President Mario Draghi’s best efforts to convince the markets that inflation expectations in the long term are for the rate to return to 2%, the markets are not convinced and are growing increasingly concerned about the rapid rate of disinflation. Should we see another drop in the figure today, the ECB may have no choice but to act next week.

That said, based on comments over the weekend from Draghi, as well as other board members such as Bundesbank Head Jens Weidmann, who is typically very hawkish, some form of monetary stimulus already appears likely. Draghi claimed that at the meeting next week they will have a lot more information available in order to make a decision, which appears to simply be an attempt to justify the decision not to ease last month. Weidmann confirmed that he would not rule out pausing sterilisation on purchases, which now appears most likely next week.

Right now it doesn’t appear to be a question of whether they’ll act next week, it’s just about how aggressive they’ll be. Weidmann was keen to highlight that options such as negative deposit rates are uncharted territory that could bring with them more pronounced side-effects that previous interest rates cuts. Given the language here, it appears that regardless of today’s figure, the ECB will play it safe when they meet next week.

The other notable release this morning is the German Ifo business climate figure, which is expected to remain at 110.6 in February. This has continued to gradually improve over the last 12 months or so and suggests the eurozone’s largest economy is going to continue to drive the recovery in the early part of the year.

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

1032

Chief market analyst James Hughes looks at a busy week for the Eurozone as inflation takes centre stage. He also looks at GDP numbers for the US and UK and how the market is reacting to Friday’s important retail sales figures from the UK.

1033

[B]Eurozone growth forecasts and US consumer in focus today[/B]

Today’s UK opening call provides an update on:

• European futures a little flat ahead of the open;
• German Q4 GDP expected unchanged at 0.4%;
• EC to release economic growth forecasts for the eurozone;
• US data in focus later.

European futures are looking a little flat this morning, with the FTSE seen 10 points lower, the CAC 2 points lower and the DAX 5 points higher.

It was a fairly quiet start to the week yesterday, although that didn’t stop us getting some nice moves in the markets. Gold extended its move higher on the back of further weakness in the greenback, the S&P 500 created new all time highs before ending the day just below its record closing level and the offshore Chinese Yuan weakened for another day prompting suggestions that the People’s Bank of China is intentionally devaluing its currency in order to discourage the carry trade.

Today could be another interesting day in the markets, with the Yuan already weakening further overnight and the dollar making every effort to break out of the consolidation and bring an end to the correction seen so far this year. The difference today is there’s more potential catalysts for the markets which could spark these kinds of moves.

First up this morning we have the first revision of Germany’s fourth quarter GDP reading, which is expected to remain unchanged at 0.4%. It is worth noting that in the last couple of years, these figures have rarely been revised, in fact only one of the last eight have been revised so there’s no reason to assume this morning’s will be any difference. On the same note though, that means that any revision could prompt a reaction in the markets, especially with the country currently being the engine for growth in the eurozone at the moment.

The European Commission will this morning release its economic growth forecasts for the eurozone over the next couple of years. Ordinarily this doesn’t really attract too much attention or have a significant impact on the markets, but today, this may be different. Over the weekend, ECB President Mario Draghi hinted that the central bank may ease monetary policy at the March meeting, next week, claiming that they will have access to a lot more data, including its own economic forecasts.

The forecasts released today could give us some insight into what the ECBs own forecasts will be, which will only assist us in predicting exactly what the ECB will do. At this stage, I don’t see the ECB doing anything rash and I can’t imagine these forecasts changing that, but as with all central banks in recent years, the ECB can be unpredictable so it shouldn’t be written off.

Later on in the US we have a few pieces of data being released, the most important of which is the February consumer confidence reading, which is expected to fall slightly to 80 from 80.7. Also being released is the Richmond Fed manufacturing index and the S&P Case-Shiller home price index.

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

1034

[B]US consumer in the spotlight as indices eye record highs[/B]

Today’s US opening call provides an update on:

[ul]
[li]US indices expected lower after the opening bell on Wall Street;
[/li][li]Consumer confidence data could provide a boost after the open;
[/li][li]December house prices likely to drop of falling demand due to poor weather and higher rates.
[/li][li]US futures are pointing to a lower open on Tuesday, a day after the S&P 500 reached new all time highs but failed to end the day above the record close. The S&P is seen opening 3 points lower, the Dow 29 points lower and the Nasdaq 5 points lower.
[/li][/ul]
It’s been quite an impressive rally in equities following the relatively large correction at the beginning of the year. The S&P is currently struggling around those previous highs and the Dow is yet to erase the losses seen this year but I think it’s only a matter of time. I don’t see the economic data getting any worse as the weather improves and if anything, the improvement may be exaggerated as the figures make up for the poor numbers from December and January. I imagine these will be particularly noticeable in areas such as the labour market, consumer spending and housing.

To an extent, this is already being priced in which is why indices are trading back near their record highs, despite the data currently not being great. But I don’t think it’s entirely priced in, or even close, and the market is now waiting for that next catalyst to send it soaring beyond the current highs.

For that we may have to wait for next week when we’ll get a whole range of economic data, including the all important US jobs report. However, there are some releases this week, and today, that could boost optimism ahead of next week’s hugely important figures.

The first one is the consumer confidence figure, which is due shortly after the opening bell. This is expected to show consumer confidence falling to 80 in February from 80.7 in January. This may suggest that the weather is finally having an impact of the consumer, but other data that we’ve seen recently would suggest otherwise, for example the consumer debt levels which are now on the rise.

This would suggest that any drop in consumer confidence in February is only likely to be temporary. Alternatively, expectations ahead of the release may just be very low in which case we see a significant surprise to the upside, which would undoubtedly boost investor sentiment.

We also have some housing data being released for December shortly before the US open. The only problem with this is it’s very much lagging data at this point, so I wouldn’t expect it to have much impact on the markets. House prices are expected to have risen by 13.3% in the final month of the year, slightly below the figure seen in November and the first drop since June. This probably reflects the lack of activity in the housing market in December due to a combination of poor weather and higher mortgage rates, although the figure is expected to remain at an elevated level due to a lack of supply in the market.

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

1035

Markets pull back from multi year highs - 00:09
EU economic forecasts key to Draghi decision-making - 00:43
US Consumer confidence expected to pull back - 02:43

Research analyst Joshua Mahony discusses the pullback in indices following multi-year highs being reached yesterday. He also discusses why the EU economic forecasts will be key to determining Mario Draghi’s next steps, along with Friday’s CPI release. Finally Joshua mentions the importance of the consumer confidence figure due out later today.

1036

[B]Europe lacking direction after choppy sessions overnight[/B]

Today’s UK opening call provides an update on:

• More poor data in the US adds to recovery concerns;
• Cause for optimism in Europe as the EC revises growth forecasts higher;
• German consumer confidence and UK GDP in focus this morning;
• Quiet US session expected with new home sales the only notable release.

Choppy sessions in both the US and Asia overnight has left European futures lacking any real direction on Wednesday, with the FTSE currently seen opening 20 points lower, the CAC 1 point higher and the DAX 2 points lower.

Investors in the US were uninspired by the drop in consumer confidence in February, as well as the slower rise in house prices seen in December. The chances are that both of these were negatively impacted by the unusually poor weather in recent months, but I get the feeling that people are becoming tired of this excuse and want to see some actual evidence that this is just a blip and not something to worry about.

A stronger than expected consumer confidence reading may have been enough to satisfy investors in the short term, but falling confidence is only going to add to concerns that the momentum built up in the second half of last year is now fading. While the economic outlook is very unlikely to be as bad as the recent data would suggest, if it has taken some of the momentum out of the recovery, then it is likely to have a significant impact on growth this year. This is hardly the start to the year we were hoping for.

Over in Europe there is a little more cause for optimism, after the European Commission claimed the worst is behind us as it revised higher its growth forecasts for the next two years. The EC sees positive growth in the eurozone this year, following two years of contraction, while every country in Europe is seen growing in 2015. This is no way means the crisis is almost over, with unemployment expected to remain extremely high even in 2015, especially in Spain and Greece, but it is a sign that the region may have finally turned a corner.

Today is looking a little quiet on the data front, which means markets may continue to lack much direction as the morning progresses. The German Gfk consumer confidence reading will be released shortly before the European open, and is expected to remain at 8.2. This will be followed by the first revision to the UK’s fourth quarter GDP figure, which is expected to remain unchanged at 0.7%. First revisions tend to have less impact on the markets than preliminary readings, that is of course unless we get a significant change in the number.

It’s going to be a similarly quiet data session in the US later, with new home sales data the only notable release today. Today is really the calm before the storm with the next couple of days offering huge amounts of economic data across Europe, the US and Asia.

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

1037

[B]Housing data headlines quiet US session[/B]

• US futures higher as traders eye record highs;
• Quiet US session expected ahead of heavy data end to the week;
• New home sales expected to fall again in January due to poor weather;
• UK Q4 growth unrevised at 0.7%.

US futures are pointing to a higher open on Wednesday with the S&P seen opening 6 points higher, the Dow 47 points higher and the Nasdaq 13 points higher.

The positive open comes after US indices closed lower on Tuesday following the release of some disappointing housing and consumer confidence figures. The consumer confidence data was particularly disappointing due to the importance of them to the economy. While I have no doubt that the recent blip in the figures are down to the unusually poor weather, there is a danger that this has disrupted the momentum that was building towards the end of 2013.

I still believe that the data in the coming months will improve significantly and any doubts that have arisen since the turn of the year will disappear. However, until we see some sign of this happening, this hesitance that we’re seeing around the all time high levels could well continue. That said, with plenty of data being released over the next week or so, we may not have to wait for long.

Unfortunately, today is not one of those heavy data days. The only notable release today is the new home sales figure for January and to an extent, the figure is no longer relevant. Pretty much all of the data we’ve seen for December and January has been poor so it would take something seriously shocking to change people views.

As it is, we’re expecting 400,000 new home sales in January, down from 414,000 and last year’s peak of 474,000. There is going to be other factors aside from the weather impacting this, such as rising mortgage rates, but one the weather picks up in the coming months, I expect sales to pick up with it.

The European session has been fairly negative so far today, having taken the lead from Tuesday’s US session and the choppy Asian session overnight. As with the US, there’s been very little data released during the session with German consumer confidence and UK GDP data being the only noteworthy releases.

The German Gfk consumer confidence figure exceeded expectations, rising to the highest level since July 2007. The market reaction to this was minimal though, as was the reaction to the UK GDP reading, although this was due to the fact that it was unrevised from the preliminary release.

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1040

[B]Europe to open lower ahead of data heavy session[/B]

• Plenty of data being released today;
• Eurozone sentiment readings becoming increasingly important;
• Lively US session expected later.

European indices are expected to open around a fifth of a percentage point lower on Thursday, with the FTSE seen opening down 17 points, the CAC down 8 points and the DAX down 26 points.

These losses in Europe come after another relatively flat session in both the US and Asia, where investors appear to be lacking that little bit of risk appetite that would propel the S&P and the Dow to new record highs. The rally in recent weeks appears to reflect the belief that the economic data is going to improve and the outlook is actually much better than some of the more pessimistic people out there are making out. That said, there’s only so high markets can go on this belief before investors are going to demand evidence and it appears that level is the record highs set at the end of 2013.

Fortunately, over the next week or so there is plenty of economic data being released that could give investors that confidence to buy at the current levels and end this brief consolidation period. Today is one of those very data heavy sessions, although unlike some of the days we’ll see next week, the majority of the figures being released today are unlikely to have a big impact on the markets, based on the response in previous month. But that doesn’t mean that collectively they won’t be enough to boost the risk appetite of investors.

For example, this morning we have a lot of historically low volatility numbers being released, including the fourth quarter Spanish GDP figure, which is expected to showing improved growth of 0.3%, the French consumer confidence reading for February and the German inflation rate for February. All of these individually will rarely have much of an impact on the markets but collectively could be key is determining risk appetite.

Also being released this morning is the German jobless figures for February. Unemployment in Germany has been extremely low throughout the crisis, especially when compared with most other countries in the euro area. The number fell again in December to 6.8%, where it is expected to remain today, while the number of those unemployed falls by 10,000.

There are a number of consumer and business sentiment surveys also being released around mid-morning which I believe are becoming viewed as increasingly important as investors look for any evidence that activity will improve as the year progresses. These surveys cover everything from business sentiment to consumer confidence and even a more general reading of economic sentiment. These numbers have already improved dramatically in the last 12 months and another good batch today could provide the boost that investors are looking for.

After this it’s over to the US where we will get some very important insight into consumer and business spending in January as well as the latest jobless numbers for the week just gone. We’ll also hear from Janet Yellen, the new Fed Chair, as she speaks in front of the Senate Banking Committee, an event that always has the potential to prompt some major moves in the markets. Yellen managed to keep her cards relatively close to her chest during her last performance in front of the House Financial Services Committee, but since then the minutes of the last meeting have been released so she may face a few more testing questions .

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1041

[B]US futures lower ahead of Yellen testimony[/B]

• European data very positive this morning;
• Risk aversion driven by confrontational military training from Russia on Ukrainian border;
• Yellen testimony, durable goods and jobless claims data in focus today.

US futures are tracking their European counterparts lower on Thursday, with the S&P currently seen down 7 points, the Dow down 61 points and the Nasdaq down 8 points.

The risk aversion being seen in the markets this morning comes despite the economic data in Europe being mostly very good. The eurozone sentiment surveys exceeded expectations across the board, from businesses to consumers, while German unemployment fell more than expected, by 14,000. The only downside came from the Spanish GDP figure which was revised lower to 0.2%, from the initial reading of 0.3%.

Of course this isn’t enough to weigh so heavily on the markets this morning. This is being put down to the reports that Russian President Vladimir Putin sent troops to the Ukrainian border to conduct military exercises, while putting fighter jets on high alert. The confrontational nature of this has unsurprisingly prompted significant risk aversion in the markets this morning, something I assume will pass fairly quickly with it unlikely to develop into anything more.

The tone for the rest of the day is unlikely to change, but there is plenty of other things to focus on, in particular Janet Yellen’s testimony in front of the Senate Banking Committee. Usually, this offers little different to the testimony in front of the House Financial Services Committee, but with this taking place a couple of weeks after due to the initial testimony being postponed, on this occasion it may.

For example, since the last testimony, the minutes from the last FOMC meeting have been released and showed some members favoured hiking interest rates as early as the middle of this year. This markets clearly did not approve of this, and it is extremely unlikely to happen, but these are the kind of questions Yellen could now face that she couldn’t a couple of weeks ago.

Also today we have some important data being released, the first being core durable goods orders before the opening bell. This is seen as a very good indicator of confidence in the economic outlook, which is very important at the best of time, but during a recovery from such a severe financial crisis, arguably more so.

A small drop of 0.3% is expected here, which probably has a lot to do with the weather in January, as with all of the other figures. Another figure like December could prompt more fear that the recovery has lost momentum which could have an impact on longer term growth.

Also being released at the same time is the weekly jobless claims figure which is expected to fall marginally to 335,000. These numbers haven’t tended to deviate to far from this level in recent months unless there’s a reason for it, such as weather, so I don’t expect this to have much impact on the markets.

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Traders risk averse early in the European session - 00:09
Eurozone sentiment figures give reason for optimism - 02:08
Better durable goods orders boosts sentiment ahead of US open - 04:55

1043

[B]Eurozone CPI in focus ahead of ECB meeting[/B]

• Nikkei tumbles on stronger yen and mixed data;
• Eurozone CPI in focus ahead of ECB meeting;
• Eurozone unemployment expected to remain at 12%;
• Packed schedule after the opening bell on Wall Street later.

European indices are expected to open slightly higher on Friday, with the FTSE seen up 9 points, the CAC up 6 points and the DAX up 6 points.

Clearly the markets aren’t taking much direction from the US, where the S&P finally managed a new record close following numerous attempts. With 1,850 now breached we could see the index push on from here, maybe not at the same pace we saw in 2013, but still a steady rise towards 2,000.

The Asian markets overnight didn’t take much of a cue from the US session. The biggest loser here was the Nikkei which fell 1.1% on a strengthening yen, which broke through a key level against the dollar and could be the start of a much bigger rally, and therefore mean further losses heading into next week.

The data from Japan overnight was relatively mixed, while at the same time pointing to some tough months ahead. Ordinarily, a 4.4% yearly rise in retail sales would be great, especially given Shinzo Abe’s target of achieving a 2% inflation target. But this sudden increase in purchases was expected ahead of the sales tax hike in April, with consumers over there getting the big purchases out of the way before prices go up. This is likely to be offset with an even bigger drop in retail sales after the tax hike comes into place. The monthly drop in core inflation won’t come as good news to Abe either as this could also be hit by the expected drop in spending after the tax hike.

With the ECB meeting next week and the risk of deflation already a hot topic in the markets and at the central bank, all eyes will be on the eurozone CPI release this morning. On Monday, the January reading was confirmed slightly higher than the initial reading, although still extremely low, at 0.8%. Previously, and more importantly when the ECB last met, inflation in January was thought to be 0.7% which wasn’t enough to convince the board to act.

Should inflation fall again in February, the ECBs hands may be tied, regardless of whether their inflation expectations are, apparently, well anchored. This seems to be the go to answer whenever ECB President Mario Draghi is pressed on why the central bank is doing nothing to achieve its only target of below, but close to, 2%.

Draghi has since claimed that the ECB will have a lot more information to base its decision on this month which, even at the time, just sounded like an excuse to buy them time and put off making the difficult decisions. Well, next week they’ll have a whole new batch of forecasts and a fresh inflation reading for the month of February. If we see another drop in the latter, I can’t see how the central bank can turn a blind eye any longer, especially if we see a drop to 0.6%, below the level at which they previously cut interest rates. Clearly the issue here isn’t whether inflation expectations are well anchored or not, it’s the lack of room for further interest rate cuts and therefore the need to try something new, something the ECB are not comfortable with.

Being released at the same time as the CPI figure is the unemployment rate for January. This is expected to remain at 12%, which is very close to record highs but thankfully, showing signs of slowly heading in the other direction. This has been just another sign that, despite unemployment still being outrageously high in some countries, the block as a whole appears have turned a corner and is on the road to recovery, finally.

There’s lots of other data being released this morning aside from this, but it consists predominantly of low level data that rarely has any impact on the markets, such as Italian unemployment, German, Irish and Greek retail sales and French consumer spending. All of these are clearly important and help to give a better picture of where the recovery is being felt more, however their impact on the market tends to be minimal as people are more concerned with the bigger picture.

Later on during the US session we have plenty of more data being released, including the first revision to the fourth quarter GDP figure, core personal consumption expenditure prices, Chicago PMI, UoM consumer sentiment index and pending home sales. On top of that we’ll also hear from a couple of Fed members, so there’s plenty for people to get their teeth stuck into during today’s packed scheduled.

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