Thank you for the informations, happy new year!
Joshua Mahony discusses the resolution of the fiscal cliff, along with PMI figures out in the Eurozone today. The charts focus on Cable (GBPUSD) and Eurodollar (EURUSD).
Forex research: Global markets daily
this could be used for other trading platforms
[B]Markets begin to fully digest ‘fiscal fudge’ after initial day of euphoria[/B]
Today’s UK opening call provides an update on:
• Fiscal cliff boosts markets, yet how long will it last, and does it have substance;
• The day after the party, markets begin to fully digest the content of the bill as taxation is set to rise for middle America;
• The deferral of a decision on the debt ceiling and spending cuts sets up a potentially more dynamic conflict in the congress in February/March;
• Data releases primarily focus upon monthly unemployment changes within Eurozone and US;
Yesterday saw the strongest opening day of the year in the markets since 2009 as European and US indices soared in response to the resolution of the fiscal cliff. Much of this euphoria was aimed squarely at the mere fact that a bill has been passed, regardless of the content. However, as time has passed, it is becoming ever evident that there are still dangers in place for the US economy and this begins to question the validity of the current bear rally.
Taking a closer look at some of the measures passed by the Congress yesterday are slightly questionable and are in a position to threat the on-going growth of the world’s largest economy. Barack Obama won re-election off the back of the promise to ensure high earners pay more tax, while low-to-middle income ‘folks’ see their tax breaks extended.
Whilst this may be the case given the extension of tax breaks for those earning below $400,000, many missed the expiry of a temporary social security payroll tax cut which will add around $1,000 for someone earning $50,000. This coupled with the increased taxes on the wealthy are likely to mute growth somewhat given the reduction in demand.
One of the most notable pieces of the bill was in relation to a postponement of the spending cuts associated with the fiscal cliff budgetary adjustments. The clear importance of this part of the bill was evident given the Republican backlash within the House when first proposed.
The passing of this bill looks to many as a strong response to the given scenario. However, the inability to create any ground on one of the most controversial parts of the bill will surely create yet more ground in the future. The delay of a spending cut decision until late February/early March coincides with the time where an extension to the debt ceiling is required to stave off default.
The fact that both of those decisions are to be made around the same time points to a scenario whereby Democrats hold far less power in their ability to get a bill passed which is beneficial to their policies. The Republicans wish to reduce spending and subsequently there is a clear ability to hold the democrats to ransom in February. The possibility of allowing spending cuts takes effect and the debt ceiling to be reached is likely to push the bargaining chips in favour of the Republicans.
Today we see a mass of data releases for the first time since the holiday period. Most notably there are a significant number of unemployment figures due out for the Eurozone countries and the UK. The Spanish unemployment change is expected to show a slowdown in the amount of newly unemployed individuals in the Iberian nation. Whilst this still would point to an increasing rate, it would at least be the lowest increase in four months.
Later in the US we are expecting both the December ADP Non-Farm Employment Change (expect 134k from 118k), along with weekly unemployment claims (expected 356k from 350k).
Lastly, the UK Construction PMI figure is due out in the morning, which is likely to remain below 50 at around 49.6. Any move above 50 would be treated as significant given the multiplier effects felt from the construction industry upon UK growth.
Eurodollar has seen substantial losses since the initial fiscal cliff rally, and subsequently…
Today Joshua Mahony discusses the ongoing market effect of yesterdays fiscal cliff deal, including the decision to delay the spending cuts and the impact of this on debt ceiling negotiations. He also draws attention to the UK Construction PMI figure (1:46) released today, along with the Spanish unemployment change (2:11). Today’s charts (3:00) in focus are the euro sterling (EURGBP) and euro dollar (EURUSD) currency pairs.
Forex research: Global markets daily
[B]Markets expected to open lower as Fed discuss an end to US QE[/B]
Today’s UK opening call provides an update on:
• FOMC minutes indicate the Fed will seek to end current monthly $85bn asset purchases scheme in 2013;
• Markets expected to fall in response with likely reduction in US QE;
• European services PMI figures due out today expected to indicate continued contraction, whist UK services PMI hoping to see further expansion;
• US unemployment figure expected to indicate a constant figure, despite the dramatic fall in construction PMI;
Yesterday we saw the minutes released from the Federal Open Market Committee’s (FOMC) meeting on 11-12 December. On the whole much of the markets paid little advance attention to this with many foreseeing that there was little in the way of surprising information expected.
However, the minutes turned out to be somewhat hawkish in nature and subsequently approached the topic bringing at least some of the current $85bn monthly asset purchases to a halt. This was in large part owing to the perceived lack of effect being felt by such actions in the market.
The debate was somewhat split between members, with some believing continued QE was strictly necessary, whilst others discussed a potential end to the current asset purchases. These people were typically separated between those who thought they should come to an end in mid-2013 and those for end of 2013. Overall this is pointing towards 2013 seeing the end of US QE as we know it.
Equity markets are currently trading lower across the board as investors show a general lack of support for the discontinuation of the current US QE, along with the after-effect of worries surrounding the fiscal cliff bill.
Today sees the release of a number of European services PMI figures, most notably from the Spanish, Italian and UK. However, whilst both the Italian and Spanish services industry is expected to remain in contraction, the UK is likely to rise further above the 50 mark denoting expansion. Any move back below this level would be seen as highly significant and a substantial kick in the teeth for the UK economy, especially after yesterday’s disappointing construction PMI figure.
US unemployment figure is due out today, with the markets expecting it to remain at 7.7%. Now of course, given this is a headline rate, there is likely to be some fairly prominent discussions surrounding this should there be any increase or decrease to the rate.
Cable is currently trading lower in early morning activity, with the price currently around 1.6076. This comes off…
Today Joshua Mahony discusses yesterday’s FOMC minutes, the UK Services PMI index, along with the US non-farm payroll figure. The charts (4:09) in view are Eurodollar (EURUSD) and Cable (GBPUSD).
Forex research: Global markets daily
[B]New year rally over as attention turns to corporate earnings[/B]
Today’s UK opening call provides an update on:
• Deal to avoid the fiscal cliff provides temporary boost for equities;
• US earnings season kicks off tomorrow when Alcoa report;
• UK house prices expected to rise for second month;
• EUR/USD, GBP/USD, USD/JPY and AUD/USD.
Stock markets are expected to open flat this morning as the improved sentiment following the fiscal cliff deal begins to wear off.
The last minute deal to avoid the fiscal cliff has contributed largely to the gains made in the equity markets in the first week of the year. However, with the “mini fiscal cliff” now coming at the end of February, when Congress will have to agree on more than $100 billion in spending cuts and an increase in the debt ceiling to avoid defaulting on its debts, investors are not getting carried away.
On top of this, the US earnings season gets under way tomorrow and the results are expected to show that the uncertainty surrounding the fiscal cliff impacted company profits. Consumer sentiment figures were much lower towards the end of the year while businesses were reluctant to invest which is likely to have had an impact on profits.
Quarterly figures have been somewhat distorted in recent quarters as companies make cuts across the board, which have contributed to higher earnings. However, there is only so long they can continue to do this and with revenues expected to drop even further compared to the same period a year earlier, we could see market sentiment take a hit.
Economic data has been largely overshadowed in recent months as the fiscal cliff dictated market sentiment. We should see it have a much bigger impact now that the cliff has been avoided. Last weeks data provided no real surprises, showing the US is continuing to grow at a moderate rate, while the UK could contract in the fourth quarter while the eurozone still looks a long way from seeing any growth.
The economic calendar is a little lighter this week, which is likely to put even more emphasis on corporate earnings. The Halifax HPI is expected to show house prices rose for a second consecutive month in December. This is positive news for the UK as it suggests that the funding for lending scheme is finally helping to ease bank lending which should help stimulate the economy this year.
The euro is trading lower against the dollar this morning. The pair found support on Friday around 1.30 as traders begin to price in the possibility that the Fed’s asset purchases could end as early as later this year. This morning the pair is finding support around 1.3035, a previous level of resistance. If it continues to edge lower, it could find further support just below 1.30 from the 50 day simple moving average.
Sterling is trading lower against the dollar this morning. The pair is currently finding support around 1.6030, however we could see it continue to trade lower as the day goes on. The next level of support should come around 1.60, from the ascending trend line dating back to June last year. This has also been a key psychological level in the past.
The dollar has made significant gains against the yen recently. The pair is trading slightly lower this morning, however…
[B]UK Christmas retail sales point to fourth quarter contraction[/B]
Today’s UK opening call provides an update on:
• Corporate earnings season takes centre stage;
• UK could fall into triple dip recession in Q1;
• Eurozone unemployment expected to hit 11.8% in November;
• German factory orders fall again.
Risk appetite has fallen at the start of this week ahead of an earnings season that promises to bring increased levels of volatility.
The last couple of earnings seasons have been overshadowed by events in the eurozone and the US. What we’ve seen over the last six months is a stock market rally that has largely ignored company performances and instead been driven by unlimited central bank stimulus and an increase in risk appetite and one disaster after another is averted.
We’re now going into an earnings season with sky high stock prices, a recent history of lower revenues with profits driven by cost cutting and low expectations. With nothing else to distract us, this could be the perfect recipe for heightened volatility in the markets and a potential correction in equity prices that has been long overdue.
The BRC retail sales figure released overnight supports expectations that the UK contracted in the final quarter of 2012. Christmas sales rose by only 0.3%, much less than inflation which suggests that real spending fell from a year earlier. Other fourth quarter data has been just as downbeat, which suggests that the UK could fall into triple dip recession in the first quarter of this year.
Eurozone unemployment is expected to have risen to 11.8% in November, which would be the seventh consecutive month the figure has risen. This is going to cause little surprise given the ongoing focus on reducing fiscal deficits and reforms. It will be interesting though to see if it continues to drop in the months ahead given the recent improvement in data we’ve seen out of the euro area.
What will be more concerning is the German factory orders data, which is expected to show a drop of 1.4% in new orders in November. This will be the third drop in four months in the figure which is a major concern for the eurozone’s largest economy, given that its manufacturing sector had previously been so resilient to effects of the debt crisis. A strong German economy is vital for the eurozone to grow its way out of recession.
The euro is trading higher against the dollar this morning. The pair found resistance earlier around 1.3150 from the 38.2% retracement of the move from May 2011 highs to July 2012 lows. A break above here should prompt a move towards last months highs around 1.33, with the next target being 1.3490, the 50% retracement of the same move.
Sterling is trading flat against the dollar this morning after closing back above 1.61 yesterday. The pair looks quite bullish at the moment having found support once again from the 50 day simple moving average. It could now target this years highs again, with the pair still failing to close above 1.63 since August 2011. The next levels of resistance should come around 1.6150, followed by 1.62.
The dollar is trading lower against the yen again today. The pair has made a substantial move higher in recent months and has become very overbought. We could now see a brief period of consolidation resulting in a flag or pennant formation. The outlook for the pair remains bullish though, with the next key levels of resistance coming around 88.0, followed by 89.0…
thanks for the constant updates
Joshua Mahony discusses the beginning of earnings season, the Eurozone unemployment figure and the potential of the US reaching the debt ceiling earlier than expected. Today’s charts (3:26) in focus are the Cable (GBPUSD) and Eurodollar (EURUSD) pairs.
Forex research: Global markets daily
[B]Corporate earnings season off to a positive start[/B]
Today’s UK opening call provides an update on:
• Focus back on corporate earnings as Alcoa reports fourth quarter profit;
• Low expectations may keep risk appetite high;
• Eurozone expected to be confirmed as in recession when final Q3 GDP figure is released this morning;
• EUR/USD, GBP/USD, USD/JPY & AUD/USD.
Focus is once again back on the corporate earnings season today, which was kicked off when Alcoa reported last night.
There seems to be a lot of mixed opinions in the market about whether the corporate earnings season is going to be positive or negative for equities. On the plus side, expectations are very low which leaves a lot of room for positive surprises.
On the flip side of that, while revenues are expected to improve compared to a dismal third quarter, they’re still expected to be pretty poor, especially compared to forecasts from a few months ago. With nothing else to distract us at the moment, this could highlight the significant difference between current share prices and actual company performance.
Another negative could be projected earnings, with the first half of this year likely to be particularly difficult for companies. That is not such a worry for Alcoa though, who announced earnings of 6 cents per share as expected, while suggesting that profits should be higher this year with the price of aluminium expected to rise.
The final third quarter GDP figure for the eurozone will be released this morning, and is expected to confirm that the euro area fell into recession. This will be followed by the German industrial output figure for November, which is expected to bounce back from three months of negative figures to grow by 1.1%.
This may be a little optimistic given the German data we have seen recently. Another negative figure seems more likely at this stage, especially with the economy expected to contract in the fourth quarter, before potentially falling into recession in the first quarter of this year.
The euro is trading flat against the dollar this morning. The pair found resistance yesterday from the ascending trend line, dating back to 13 November, that it broke below on Thursday. This could act as confirmation of the break below, prompting a move back towards 1.30. If it does edge lower, the pair should find support around 1.3033.
Sterling is trading slightly lower against the dollar this morning. The pair has found support around 1.6050 from the 100 day simple moving average, just above the ascending trend line, dating back to June’s lows. Given that the stochastic is also crossing in oversold territory on the daily chart, this would suggest the bearish move may have run out of steam and we the pair could target 1.63 again. If it does, the next area of resistance should come around 1.6066, followed by 1.61.
The dollar is trading higher against the yen this morning, after taking a breather following a significant rally over the past few weeks. The pair is currently finding resistance around 87.50, but is likely to continue to trade higher, with the next areas of resistance coming around 88.0, followed by 89.0.
The Aussie dollar is trading flat against the greenback this morning, having once again found resistance around 1.05. Despite…
Craig Erlam talks about the corporate earnings season, the eurozone GDP figure and the disappointing figures out of Germany. He then takes a look at the cable chart (4:10).
Forex research: Global markets daily
[B]Stock markets boosted by Chinese trade data[/B]
Today’s UK opening call provides an update on:
• China trade balance data provides a boost to risk appetite;
• BoE exected to keep interest rate and asset purchases on hold;
• ECB may hold off on rate cut until the end of the year;
• EUR/USD, GBP/USD, USD/JPY, AUD/USD.
A significant improvement in China’s December trade surplus has given the markets a boost ahead of the European open.
Chinese exports were 14.1% higher compared to a year earlier, with increased demand from the US and the eurozone contributing to the surprising figure. The reaction to the data has been largely positive, with futures pointing to a higher open in European indices, however investors don’t appear to be getting too carried away with the data, and for good reason.
Chinese trade data has been quite volatile over the last 12 months so we shouldn’t read too much into a single figure. Especially when the next year is going to be extremely difficult for two of its largest trading partners, the US and the eurozone. The euro area is expected to remain in recession for most, if not the entire year, so demand from here is likely to fall rather than rise.
In the US, growth is expected to slow this year following the expiry of some tax breaks, most notably the payroll tax, which is likely to impact consumer spending. On top of this, spending cuts which could come into play from the end of February could also hit US growth, and therefore demand for Chinese goods.
The Bank of England are unlikely to make any changes to monetary policy at the meeting today. While the UK economy has struggled in the fourth quarter and is now expected to contract, the central bank is unlikely to act in anticipation of such an outcome, especially when so many board members are sceptical about the benefit of the more recent asset purchases.
If the figure released later this month shows the UK did contract in the fourth quarter, that will put a lot more pressure on the central bank next month to do more. However, for now, it’s likely to continue to stand by the Funding for Lending scheme and hold off on any further action.
The ECB are also meeting today and just like the BoE, are expected to keep interest rates on hold. A rate cut was apparently discussed in depth at the last meeting, however this is unlikely to materialise yet, with Germany still concerned about the inflationary impact of such a move.
On top of this, business and consumer survey’s improved significantly at the end of the year which suggests conditions may improve in 2013, despite other measures of economic performance suggesting otherwise. Finally, it’s difficult to see how much of a positive impact a rate cut could have on the economy at a time when countries are undergoing so much austerity, this may be something the ECB are holding off on until later in the year when they expect the eurozone economy to start to pick up.
The euro is trading lower against the dollar for a third day. The pair found resistance earlier in the week from the ascending trend line, dating back to 13 November, that it broke below last Thursday. This could act as confirmation of the break below which would suggest the pair is going to make a significant move lower. However there does not appear to be a huge amount of selling at this stage to support that. The key test will come if the pair breaks below 1.30, if it doesn’t then we could see another move towards last month’s highs.
Sterling is trading lower against the dollar this morning. The pair broke below the 50 and 100 day simple moving averages yesterday, which is quite a bearish signal for the pair given that both have acted as key levels of support recently. A big test will now come around 1.60, where the pair should find support from the ascending trend line, dating back to 1 June. 1.60 is also a key psychological level for the pair so a break below here would be a very bearish signal.
The dollar is trading higher against the yen this morning. The pair is trading above 88.0, which has previously been a key level of support and resistance. If it breaks above its 30-month highs of 88.40, it should prompt a move towards 89.0 in the coming days, however it could find further resistance around 88.66.
The Aussie dollar is trading higher against the greenback this morning. The pair has broken above the key descending trend line, dating back to June 2011, which has repeatedly acted as a key resistance level. If the pair ends the day above here, it would be an extremely bullish signal for the pair, prompting a significant move higher. As the day goes on…
Craig Erlam talks about the BoE and ECB meetings, the Spanish and Italian bond auction and the Chinese trade balance data. He then takes a look at the AUDUSD chart.
Forex research: Global markets daily
[B]Chinese inflation jumps on higher food prices[/B]
Today’s UK opening call provides an update on:
• Chinese inflation highest since May;
• More positive data expected for UK manufacturing sector;
• NIESR offer first estimate of UK fourth quarter GDP;
• EUR/USD, GBP/USD, USD/JPY & AUD/USD.
Inflation in China jumped to 2.5% in December as poor weather pushed food prices significantly higher. While the figure remains well below the inflation target of 4%, it has raised concerns that it could lead to a tightening of monetary policy in the first half of this year.
The loosening of monetary policy appears to have been largely responsible for the improvement witnessed in the economy in the fourth quarter. Data released next week is expected to show the economy grew by around 7.8% in the last quarter, bucking the trend of seven consecutive quarters of slowing growth.
As with the impressive trade balance figure yesterday, the figure appears to have had minimal impact on the European markets, with futures pointing to a higher open in the major indices. However this could still be in reaction to ECB President Mario Draghi’s positive assessment of the eurozone in recent months and optimistic outlook from the end of this year.
Last week, the UK manufacturing PMI surprised the markets with a much improved growth figure following seven months of contraction. The improvement in the data is expected to continue today with the manufacturing production figure for November expected to show a 0.6% increase from a month earlier.
While this would be a positive figure, it’s far too early to get carried away with it given that the UK economy is still expected to contract in the fourth quarter and growth next year is expected to be minimal.
The first estimate of the UK’s fourth quarter GDP will be released this morning. The NIESR GDP estimate is expected to show that the economy contracted in the final quarter of the year, however it is likely to be largely ignored given the inaccuracy of previous readings when compared to the first official GDP estimate and the final figure.
In both cases, on average, the NIESR figure tends be wrong by roughly 0.3%. Therefore, any figure between -0.2% and 0.2% will probably be ignored whereas anything either side could give an accurate indication of whether the UK grew or contracted in the fourth quarter. This is when we are likely to see a significant reaction to the figure.
The euro is trading lower against the dollar today after making significant gains yesterday. The pair found resistance around 1.3275, which has previously been a strong level of resistance. We could see it pare some of these gains today, however the outlook for the pair still looks quite bullish. The next level of resistance for the pair should come around 1.33, followed by 1.3360.
Sterling is trading lower against the dollar this morning. The pair found support yesterday from the ascending trend line, dating back to June’s lows. It has temporarily found resistance around 1.6165, however a break above here should prompt a move towards 1.6190, followed by 1.6250. The next real test for the pair will come around 1.63, where it has failed to close above since August 2011.
The dollar is trading higher against the yen this morning. The pair has found strong resistance though around 89.0, which has previously been a key level of both support and resistance. The pair still looks extremely bullish so we could see it break above here which should prompt a move towards 90.0, which is likely to be a key psychological level. The pair should first find resistance though around 89.60.
The Aussie dollar is trading higher against the greenback this morning. The pair closed above the descending trend line, dating back to July 2011, which is an extremely bullish signal for the pair. On the weekly chart, this is actually where the descending trend line crosses with an ascending trend line, dating back to May’s lows. If it closes above here today…
Craig Erlam talks about the Chinese inflation figure and what it means for its monetary policy, what to look for from the UK NIESR GDP estimate, today’s corporate earnings and Japan’s new stimulus program. He then takes a look at the USDJPY chart (3:55).
Forex research: Global markets daily
[B]Expectations remain low as major banks report this week[/B]
Today’s UK opening call provides an update on:
* Corporate earnings season to continue with major US banks reporting;
* Low earnings expectations inflate the stock market bubble;
* Key economic data due out of China and the US later this week;
* Significant improvement in eurozone industrial production data expected in November.
Attention remains on corporate earnings this week; in particular the banks with Goldman Sachs and JP Morgan among others due to report.
With earnings expectations so low for the fourth quarter, it’s difficult to see how the banks can disappoint. Earnings estimate have already dropped significantly in the past couple of weeks, which surely leaves any surprises firmly to the upside.
This again raises questions over the sustainability of the recent stock market rally. Over the past few earnings seasons, the bar has been lowered so much to accommodate the rally that all we’re doing is creating a huge bubble that is ready to blow. When this happens is likely to depend on how long we have until the next eurozone issue rears its ugly head.
There’s also a few key pieces of economic data to be released this week. The fourth quarter GDP figure for China should provide a boost to the markets on Friday, ending seven consecutive quarters of slowing growth, with a figure of 7.8%. A strong Chinese recovery will be essential if we’re going to see the other major economies improve this year, a scenario that at this point looks rather unlikely.
Another one to watch later this week will be the release of the US housing data. This data has improved significantly in recent months, which suggests that growth could pick up this year in the US, as long as Congress can agree on a deal at the end of February that doesn’t harm the recovery.
This morning, we have industrial production data out of Italy and the eurozone. A figure of…
Craig Erlam talks about US corporate earnings, Chicago Fed president Charles Evans growth forecasts and Ben Bernanke’s speech at the University of Michigan later today. He then takes a look at the EURUSD chart (2:55), with some key resistance levels approaching.
Forex research: Global markets daily