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Alpari
Alpari Representative
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UK Opening Call from Alpari UK - 9 January 2015
Non Farm Payrolls to finish off busy first week back
Morning all,
The first week of the new year is nearly over and for very many it is not going to be a week that they quickly forget. With oil prices dropping below $50 a barrel, deflation finally in the Eurozone and some huge swings in equity and currency markets you could have been forgiven for thinking there had been no festive break at all. The week is not yet over in terms of the volatility either as later this afternoon we will see the release of the US non-farm payroll number within the jobs report. However before we get there we have seen inflation data from China overnight which has shown inflation hit a 5 year low falling to 1.5%, well below the government’s target of 3.5%. Yet again, and very much like the Eurozone number earlier this week, a main driver of the fall has been to do with the incredibly week oil price. However regardless of the oil price fall the fact that domestic prices are also so week is of course a cause for concern for China, with growth still struggling then ultra low inflation and global growth fears could well cause more jitters yet as we move into next week.
The last session of the week is set to be a fairly busy one on the economic calendar as traders also try and decide how to position themselves over the weekend after what has been a tumultuous week. Obviously there will not be too many traders moaning about the volume and volatility that has returned to global markets this week, however just how successful the week has been may well decide just how much risk people are willing to take on as we head in to the payroll figure later this afternoon. It has been a week where many have looked to take the risk of trade with many still dumping the pound and the euro in favour of the US dollar and gold. However equity markets have been mixed throughout the week, including a real mixed bag for some of the retailers in the UK on what has now been dubbed (as we can’t help but name days) super Thursday for the retail industry. This morning will see numbers out of the UK again today with industrial and manufacturing production as well as trade balance figures. It seems that the UK is actually sitting in a bit of a sweet spot at the moment in terms of the economy. With ultra-low prices and low petrol prices meaning the general public can happily put their hands in their pockets and spend money. While on the other hand strong growth figures are coupled with improving unemployment and Average earnings numbers and a falling deficit. It is rarely that things look positive for both electorate and government, but there is also no better time for this to happen than in the run up to a general election.
So on to the payrolls and what is expected , we are looking at a number around 240K this afternoon when we get the reading. This would be a long way below last month’s surprise jump over 300K and could cause a bit of disappointment. However Decembers number is always that little bit lower due to seasonal effects, however with the US economy well on track and the Fed happy with the state of monetary policy it could well be that this number does not actually hold much significance, unless drastically lower. Personally I think we could see a better number yet again, which along with positive numbers all over the economy is going to lead to earlier than expected rises in interest rates with my prediction being that we could well get the first rate hike by March. Whenever it is we get the first rate hike however it is not going to be unemployment that is an issue as today will most likely show that the job market in the US continues to improve and is doing so at a pretty fast rate.
Ahead of the open we expect to see the FTSE open lower by 6 points with the German DAX lower by 20 points.
Non Farm Payrolls to finish off busy first week back
Morning all,
The first week of the new year is nearly over and for very many it is not going to be a week that they quickly forget. With oil prices dropping below $50 a barrel, deflation finally in the Eurozone and some huge swings in equity and currency markets you could have been forgiven for thinking there had been no festive break at all. The week is not yet over in terms of the volatility either as later this afternoon we will see the release of the US non-farm payroll number within the jobs report. However before we get there we have seen inflation data from China overnight which has shown inflation hit a 5 year low falling to 1.5%, well below the government’s target of 3.5%. Yet again, and very much like the Eurozone number earlier this week, a main driver of the fall has been to do with the incredibly week oil price. However regardless of the oil price fall the fact that domestic prices are also so week is of course a cause for concern for China, with growth still struggling then ultra low inflation and global growth fears could well cause more jitters yet as we move into next week.
The last session of the week is set to be a fairly busy one on the economic calendar as traders also try and decide how to position themselves over the weekend after what has been a tumultuous week. Obviously there will not be too many traders moaning about the volume and volatility that has returned to global markets this week, however just how successful the week has been may well decide just how much risk people are willing to take on as we head in to the payroll figure later this afternoon. It has been a week where many have looked to take the risk of trade with many still dumping the pound and the euro in favour of the US dollar and gold. However equity markets have been mixed throughout the week, including a real mixed bag for some of the retailers in the UK on what has now been dubbed (as we can’t help but name days) super Thursday for the retail industry. This morning will see numbers out of the UK again today with industrial and manufacturing production as well as trade balance figures. It seems that the UK is actually sitting in a bit of a sweet spot at the moment in terms of the economy. With ultra-low prices and low petrol prices meaning the general public can happily put their hands in their pockets and spend money. While on the other hand strong growth figures are coupled with improving unemployment and Average earnings numbers and a falling deficit. It is rarely that things look positive for both electorate and government, but there is also no better time for this to happen than in the run up to a general election.
So on to the payrolls and what is expected , we are looking at a number around 240K this afternoon when we get the reading. This would be a long way below last month’s surprise jump over 300K and could cause a bit of disappointment. However Decembers number is always that little bit lower due to seasonal effects, however with the US economy well on track and the Fed happy with the state of monetary policy it could well be that this number does not actually hold much significance, unless drastically lower. Personally I think we could see a better number yet again, which along with positive numbers all over the economy is going to lead to earlier than expected rises in interest rates with my prediction being that we could well get the first rate hike by March. Whenever it is we get the first rate hike however it is not going to be unemployment that is an issue as today will most likely show that the job market in the US continues to improve and is doing so at a pretty fast rate.
Ahead of the open we expect to see the FTSE open lower by 6 points with the German DAX lower by 20 points.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
US Opening Call from Alpari UK - 9 January 2015
Wage growth key in jobs report as Fed eyes rate hike
• Oil price stabilisation provides further boost for equities;
• US jobs report in focus as Fed prepares first rate hike;
• Investors may be overly optimistic on job creation;
• Wage growth key in providing inflationary pressures.
After a busy week in the markets in which most of the focus has been on oil prices, attention will turn to the US today with the December jobs report potentially providing the next catalyst for the markets.
The stabilisation of oil prices in recent days has given equity markets a boost as energy companies pare some of the significant losses sustained throughout the enormous sell-off in oil. Oil prices aside, the current environment is actually quite bullish for the markets, even with the Fed having ended its quantitative easing program in October and looking ever more likely to raise interest rates in June. The ECB is widely expected to announce its own bond buying program imminently and the Bank of Japan is already buying bonds on an extremely large scale.
With the market having accepted that interest rate hikes in the US are on the horizon, we no longer appear to be in a scenario in which good news in bad news for the markets. This is probably due to the very accommodative stance of other central banks but regardless, further evidence that the US economy is strengthening is generally viewed positively by the markets.
With that in mind, there is no batch of data that is viewed as being more important than the US jobs report which provides an update on job creation, unemployment, wages, hours worked and participation. While the unemployment rate and non-farm payrolls figures tend to make the headlines, it’s the other readings that I believe hold the key to when the FOMC will decide to raise interest rates.
Unemployment is expected to fall to 5.7% in December, very close to the level that the Fed deems full employment while 240,000 jobs are believed to have been created, the eleventh consecutive month that this number has exceeded 200,000 which is the longest stretch since 1994. It’s no wonder people are getting carried away with the recovery in the US and bullish on the dollar!
Taking that into consideration, it is extremely unlikely that these figures will change the FOMCs view on interest rates, regardless of what they are. What I would say though is given the strength in last month’s reading, I wouldn’t be surprised to see a figure well below the 240,000 as well as a downward revision to the November reading. I don’t think that will bother investors too much though as they should be more concerned with wage growth, hours worked and participation as its these that are going to create inflationary pressures going forward which is what the Fed is banking on. If we get signs between now and the June meeting that these are deteriorating, the FOMC may be convinced to push back the first hike.
The S&P is expected to open 4 points lower, the Dow 46 points lower and the Nasdaq 4 points lower.
Wage growth key in jobs report as Fed eyes rate hike
• Oil price stabilisation provides further boost for equities;
• US jobs report in focus as Fed prepares first rate hike;
• Investors may be overly optimistic on job creation;
• Wage growth key in providing inflationary pressures.
After a busy week in the markets in which most of the focus has been on oil prices, attention will turn to the US today with the December jobs report potentially providing the next catalyst for the markets.
The stabilisation of oil prices in recent days has given equity markets a boost as energy companies pare some of the significant losses sustained throughout the enormous sell-off in oil. Oil prices aside, the current environment is actually quite bullish for the markets, even with the Fed having ended its quantitative easing program in October and looking ever more likely to raise interest rates in June. The ECB is widely expected to announce its own bond buying program imminently and the Bank of Japan is already buying bonds on an extremely large scale.
With the market having accepted that interest rate hikes in the US are on the horizon, we no longer appear to be in a scenario in which good news in bad news for the markets. This is probably due to the very accommodative stance of other central banks but regardless, further evidence that the US economy is strengthening is generally viewed positively by the markets.
With that in mind, there is no batch of data that is viewed as being more important than the US jobs report which provides an update on job creation, unemployment, wages, hours worked and participation. While the unemployment rate and non-farm payrolls figures tend to make the headlines, it’s the other readings that I believe hold the key to when the FOMC will decide to raise interest rates.
Unemployment is expected to fall to 5.7% in December, very close to the level that the Fed deems full employment while 240,000 jobs are believed to have been created, the eleventh consecutive month that this number has exceeded 200,000 which is the longest stretch since 1994. It’s no wonder people are getting carried away with the recovery in the US and bullish on the dollar!
Taking that into consideration, it is extremely unlikely that these figures will change the FOMCs view on interest rates, regardless of what they are. What I would say though is given the strength in last month’s reading, I wouldn’t be surprised to see a figure well below the 240,000 as well as a downward revision to the November reading. I don’t think that will bother investors too much though as they should be more concerned with wage growth, hours worked and participation as its these that are going to create inflationary pressures going forward which is what the Fed is banking on. If we get signs between now and the June meeting that these are deteriorating, the FOMC may be convinced to push back the first hike.
The S&P is expected to open 4 points lower, the Dow 46 points lower and the Nasdaq 4 points lower.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
Mixed US jobs report as important Fed metrics disappoint
At first look, the US jobs report was extremely impressive, 252,000 jobs created in December and November’s revised up from the already staggering 321,000 to 353,000, the highest since January 2012. Unemployment fell to 5.6% in December, only 0.1% above what the Federal Reserve deems to be full employment, at which point we should start to see some real wage growth and inflationary pressures, hence the need for a rate hike in the next 6 months.
Unfortunately that’s where the positivity around the report ends as participation fell back to 62.7%, which was probably largely responsible for the decline in the unemployment rate, while wages fell by 0.2% on the month dragging the yearly figure back to 1.7%. While this is still good, it’s certainly not the report the FOMC was hoping to see, with all of the metrics they are most interested in right now disappointing. I don’t think this changes the outlook for the first rate hike this year but a couple more months of the same and they may be start to consider waiting a little longer until they are more convinced on the sustainability of the recovery.
The market reacted almost exactly as you would expect to this report, with the dollar strengthening immediately after the release as traders react to the job creation and unemployment numbers, before pulling back as the wage and participation readings take some of the shine off the report. All things considered, the report is still strong and I’m sure wage growth and participation will improve in the coming months as the recovery goes from strength to strength. Given that many jobs that are created in the holiday season are low paid, we maybe shouldn’t be too surprised at the decline in wage growth and instead be pleased with the level of job creation.
At first look, the US jobs report was extremely impressive, 252,000 jobs created in December and November’s revised up from the already staggering 321,000 to 353,000, the highest since January 2012. Unemployment fell to 5.6% in December, only 0.1% above what the Federal Reserve deems to be full employment, at which point we should start to see some real wage growth and inflationary pressures, hence the need for a rate hike in the next 6 months.
Unfortunately that’s where the positivity around the report ends as participation fell back to 62.7%, which was probably largely responsible for the decline in the unemployment rate, while wages fell by 0.2% on the month dragging the yearly figure back to 1.7%. While this is still good, it’s certainly not the report the FOMC was hoping to see, with all of the metrics they are most interested in right now disappointing. I don’t think this changes the outlook for the first rate hike this year but a couple more months of the same and they may be start to consider waiting a little longer until they are more convinced on the sustainability of the recovery.
The market reacted almost exactly as you would expect to this report, with the dollar strengthening immediately after the release as traders react to the job creation and unemployment numbers, before pulling back as the wage and participation readings take some of the shine off the report. All things considered, the report is still strong and I’m sure wage growth and participation will improve in the coming months as the recovery goes from strength to strength. Given that many jobs that are created in the holiday season are low paid, we maybe shouldn’t be too surprised at the decline in wage growth and instead be pleased with the level of job creation.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
2015 – The Year Ahead
It would be hard to imagine a more volatile and unpredictable year than the one we’ve just left, and to some extent we enter 2015 with many questions to be answered.
From a financial markets standpoint, the prospect of major political and economic turmoil means that price volatility is almost guaranteed. The major disparity seen between weaker regions such as the eurozone and Japan, compared to the stronger performers such as the UK and US, will be front and centre given the divergent paths of monetary policy between the two camps. With that in mind it is worth taking a look at what could be some of the major themes throughout 2015.
Political instability
From a political view, the focus will largely be on European elections, which given the rise of anti-austerity and anti-EU sentiment means that there will be a push towards more isolationist policies by the dominant parties, as a means to appease the clear unrest seen throughout some of the major economies.
The UK election in May is no doubt going to be dominated by the question of how far both Labour and the Conservatives will go towards the anti-immigration rhetoric touted by UKIP and Nigel Farage. Teresa May’s announcement that international students will be ejected from the country immediately after finishing their qualifications highlights this, and points to a crude and reactionary policy which is focused upon appeasing voters despite essentially leading to a brain drain from UK institutions.
However, given the fact that the UK seems to be headed towards a referendum upon EU membership, the UK’s ability for options which can limit mass immigration without leaving the union will be important as a means to deter people from voting in favour of the drastic move to the exit doors.
Greek election
On mainland Europe, the Greek election on 22 January is the first and one of the biggest of multiple flashpoints which could greatly affect the structure of the eurozone as we know it.
The rise of the anti-austerity Syriza party means that the single currency region could be a much more confrontational place very soon. Given their promise to write-down debt and alleviate the pressure of the austerity measures which were implemented as a prerequisite to gaining funds, there is little chance that the likes of Germany will want to lose out on both fronts. As a result, Angela Merkel has already been warning voters through an apparent ‘leak’ that the Bundestag have been preparing for a Greek exit.
For the most part though, it is highly unlikely that of all countries, Germany would want to initiate the breakup of the eurozone, yet should Syriza get into power, it would without doubt be a bumpy road ahead, and the threat of contagion throughout the eurozone would be critical. With the likes of Spain and Portugal also due for elections this year, we are expecting to see political instability play a significant role in 2015.
Oil price slide
The incessant fall in oil prices through the second half of 2014 gained in importance once it became clear that rather than simply being a result of heightened supply, it was also being driven by an agenda from Saudi Arabia, who plan to reduce prices to a level which would make many of the worldwide drilling and fracking operations economically unviable.
This means that we could see global supply come down eventually, but that could take time, with much of the investment in drilling having been assigned for a while yet. With Russian oil output has hitting a post-Soviet Union record high, and Iraqi oil exports at their highest levels since 1980, there is significant doubt as to whether the falling prices are going to force output lower.
The current trend clearly shows that those countries outside of OPEC are deciding to actually increase their exports to compensate for a lack of earnings at previous levels, and given that restrictions upon Iranian exports could be lifted at some point in 2015, we could yet see another major oil producer hitting the markets with major supply.
The impact of the recent falls in oil prices are far-reaching, to say the least. There are mixed feelings for many, with the energy sector no doubt feeling the brunt of this shift and subsequent job losses are likely to follow once companies refrain from drilling, due to the loss of profitability at lower prices. However, on a macro level, it is less clear, with economies reliant upon oil exports set to lose crucial tax revenues while net importers should gain from the lower prices. However, aside from that, there is a more widespread boost to the rest of the economy, where lower oil and gas prices will lead to a greater degree of disposable income to be spent by consumers. Therefore retail firms will no doubt see 2015 as a massive opportunity to boost sales for luxury items and experiences such as holidays.
Lower oil prices also mean that the costs of production will be cut significantly and this can only be a good thing for everyone. While producers will no doubt pass a lot of this saving on, it is likely that they will also take the opportunity to increase profit margins and so transport-reliant industries are set for a particularly good year.
Inflation and its impact on central banking
The influence of these falling oil prices are no doubt going to compound the problem of disinflation that has been felt around the world. No more so than in the eurozone, where markets are still reeling from the announcement that CPI fell to -0.2% in December 2014. This move into deflation could be the first month of many such announcements, and puts pressure on ECB president Mario Draghi to finally introduce a fully-blown quantitative-easing programme.
The fact that deflation has finally arrived is hugely significant, but perhaps the most important question is when the eurozone will move back into inflation. With oil prices tumbling, the pressure will no doubt be downward for global price growth and this is going to have a profound effect on central bank policies.
The ECB appears to be on the cusp of a round of fully-blown quantitative easing, which is likely to continue the equity rally seen throughout 2014. However, the delaying of interest-rate hikes from the likes of the US and UK is likely to be just as important, leading to a continued emphasis on credit and investment over savings across the western world.
The impact of current inflation levels hasn’t yet taken hold within the likes of the UK, US and China, to the same extent as it has within the eurozone. However, the signs are that the impact of falling oil prices will invariably catch up with inflation data in the end – and once it does, there is little doubt that the central banks will have to take heed and act accordingly. Given that the norm for central banks is to see price stability as their core mandate (this typically means price growth around 2%), the move lower in prices will no doubt have a massive impact upon the degree of monetary policy seen globally.
It would be hard to imagine a more volatile and unpredictable year than the one we’ve just left, and to some extent we enter 2015 with many questions to be answered.
From a financial markets standpoint, the prospect of major political and economic turmoil means that price volatility is almost guaranteed. The major disparity seen between weaker regions such as the eurozone and Japan, compared to the stronger performers such as the UK and US, will be front and centre given the divergent paths of monetary policy between the two camps. With that in mind it is worth taking a look at what could be some of the major themes throughout 2015.
Political instability
From a political view, the focus will largely be on European elections, which given the rise of anti-austerity and anti-EU sentiment means that there will be a push towards more isolationist policies by the dominant parties, as a means to appease the clear unrest seen throughout some of the major economies.
The UK election in May is no doubt going to be dominated by the question of how far both Labour and the Conservatives will go towards the anti-immigration rhetoric touted by UKIP and Nigel Farage. Teresa May’s announcement that international students will be ejected from the country immediately after finishing their qualifications highlights this, and points to a crude and reactionary policy which is focused upon appeasing voters despite essentially leading to a brain drain from UK institutions.
However, given the fact that the UK seems to be headed towards a referendum upon EU membership, the UK’s ability for options which can limit mass immigration without leaving the union will be important as a means to deter people from voting in favour of the drastic move to the exit doors.
Greek election
On mainland Europe, the Greek election on 22 January is the first and one of the biggest of multiple flashpoints which could greatly affect the structure of the eurozone as we know it.
The rise of the anti-austerity Syriza party means that the single currency region could be a much more confrontational place very soon. Given their promise to write-down debt and alleviate the pressure of the austerity measures which were implemented as a prerequisite to gaining funds, there is little chance that the likes of Germany will want to lose out on both fronts. As a result, Angela Merkel has already been warning voters through an apparent ‘leak’ that the Bundestag have been preparing for a Greek exit.
For the most part though, it is highly unlikely that of all countries, Germany would want to initiate the breakup of the eurozone, yet should Syriza get into power, it would without doubt be a bumpy road ahead, and the threat of contagion throughout the eurozone would be critical. With the likes of Spain and Portugal also due for elections this year, we are expecting to see political instability play a significant role in 2015.
Oil price slide
The incessant fall in oil prices through the second half of 2014 gained in importance once it became clear that rather than simply being a result of heightened supply, it was also being driven by an agenda from Saudi Arabia, who plan to reduce prices to a level which would make many of the worldwide drilling and fracking operations economically unviable.
This means that we could see global supply come down eventually, but that could take time, with much of the investment in drilling having been assigned for a while yet. With Russian oil output has hitting a post-Soviet Union record high, and Iraqi oil exports at their highest levels since 1980, there is significant doubt as to whether the falling prices are going to force output lower.
The current trend clearly shows that those countries outside of OPEC are deciding to actually increase their exports to compensate for a lack of earnings at previous levels, and given that restrictions upon Iranian exports could be lifted at some point in 2015, we could yet see another major oil producer hitting the markets with major supply.
The impact of the recent falls in oil prices are far-reaching, to say the least. There are mixed feelings for many, with the energy sector no doubt feeling the brunt of this shift and subsequent job losses are likely to follow once companies refrain from drilling, due to the loss of profitability at lower prices. However, on a macro level, it is less clear, with economies reliant upon oil exports set to lose crucial tax revenues while net importers should gain from the lower prices. However, aside from that, there is a more widespread boost to the rest of the economy, where lower oil and gas prices will lead to a greater degree of disposable income to be spent by consumers. Therefore retail firms will no doubt see 2015 as a massive opportunity to boost sales for luxury items and experiences such as holidays.
Lower oil prices also mean that the costs of production will be cut significantly and this can only be a good thing for everyone. While producers will no doubt pass a lot of this saving on, it is likely that they will also take the opportunity to increase profit margins and so transport-reliant industries are set for a particularly good year.
Inflation and its impact on central banking
The influence of these falling oil prices are no doubt going to compound the problem of disinflation that has been felt around the world. No more so than in the eurozone, where markets are still reeling from the announcement that CPI fell to -0.2% in December 2014. This move into deflation could be the first month of many such announcements, and puts pressure on ECB president Mario Draghi to finally introduce a fully-blown quantitative-easing programme.
The fact that deflation has finally arrived is hugely significant, but perhaps the most important question is when the eurozone will move back into inflation. With oil prices tumbling, the pressure will no doubt be downward for global price growth and this is going to have a profound effect on central bank policies.
The ECB appears to be on the cusp of a round of fully-blown quantitative easing, which is likely to continue the equity rally seen throughout 2014. However, the delaying of interest-rate hikes from the likes of the US and UK is likely to be just as important, leading to a continued emphasis on credit and investment over savings across the western world.
The impact of current inflation levels hasn’t yet taken hold within the likes of the UK, US and China, to the same extent as it has within the eurozone. However, the signs are that the impact of falling oil prices will invariably catch up with inflation data in the end – and once it does, there is little doubt that the central banks will have to take heed and act accordingly. Given that the norm for central banks is to see price stability as their core mandate (this typically means price growth around 2%), the move lower in prices will no doubt have a massive impact upon the degree of monetary policy seen globally.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
Weekly market preview from Alpari UK – 12 January 2015
With a big week in the market just gone, trading activity and excitement seems to have built up given the volatility seen as a result of the plummeting oil prices and continued talk of the possible introduction of a QE programme by the ECB later this month. The week ahead looks somewhat more mixed, with real major releases somewhat few and far between. In the US, the release of retail sales provides us with a greater degree of understanding regarding consumer behaviour. Meanwhile in the UK the CPI figure due out on Tuesday is going to be absolutely crucial following the oil induced fall into deflation for the eurozone. On the topic of the eurozone, the European court of justice ruling on Wednesday will bring the validity of the OMT programme back to the fore.
In Asia, the lack of any major releases means that we will be looking towards Australia as the main source of overnight newsflow. The Australian jobs report on Thursday represents the most significant release to watch out for.
US
The US region has by far the most significant events this week, given the somewhat thin week ahead for most countries. That being said, there are few that genuinely provide a significant likeliness of volatility following their release. Of the events to watch out for, the retail sales figure on Wednesday along with Friday’s CPI and consumer sentiment survey releases are the ones I am most keenly following.
The first of these is also possibly the most important, with the retail sales number representing the tangible result of both consumer sentiment and spending behaviour in December. Given that December is such a crucial month for the retail sector, all eyes will be focused on this number, following a strong November reading. The black Friday to cyber Monday trend seen throughout the US means that alot of the Christmas purchases are likely to have been made either in November or at a discounted price. For this reason, there are a number of people who believe we are going to see a weak number this month and the consensus is that there will only be a 0.1% rate of increase compared to the 0.7% figure in November. Given that the US economy is massively driven by consumer spending and behaviour, be aware that spending figures provide a great indication of economic activity in December which will no doubt impact growth figures.
On Friday, the US CPI figure is released, with many now watching closer than ever following the incessant fall in oil prices and the impact that is expected to have upon the inflation rates. In the US, the main measure of price growth is the PCE price index and for this reason, the CPI level is somewhat less crucial than in countries such as the UK and eurozone. However, given that the eurozone saw deflation in December it is going to be crucial to see whether this is going to be a global trend where falling oil prices push all the headline inflation rates lower. Should we see this week’s CPI figure fall lower than the -0.3% seen last month, it could be a cause for concern at the Fed and may indicate softness in the PCE number later this month.
Finally, the release of the University of Michigan consumer sentiment figure brings yet another focus upon the outlook of consumers in the US. Given that so much of the US economic growth can be attributed to domestic spending, a confident consumer base is key to seeing more of the strong GDP figures that have been evident in the US throughout 2014.
UK
A quiet week in the UK, where the biggest release to be watching out for will be Tuesday’s CPI release, following the global impact of falling oil prices. Much like the eurozone, the most important inflation reading in the UK is the CPI figure and in the same way that the ECB is expected to introduce QE as a result of falling inflation levels, the BoE will be watching very closely to see if any further downside in CPI will impact their monetary policy decisions. The likeliness is that should we see that move lower in inflation to any major degree, it will serve to reduce the likeliness of a rate hike in the near future. With that in mind, the yearly figure is expected to pull back from 1% to 0.7% for December. That is likely to be largely driven by oil prices, and given that the eurozone saw a fall from 0.3% to -0.2%, there is reason to believe it could an be even bigger fall. With the target rate of inflation set at 2% for the BoE, any move below 0.7% could bring serious anxiety at the BoE, limiting their ability to tighten monetary policy anytime soon.
Eurozone
Yet another quiet week in prospect in the eurozone, where the only major event of note comes in the form of a hearing at the European court of Justice, where the validity of the OMT programme comes under the spotlight. This follows the decision from the German Federal Constitutional Court to refer a list of questions to the European court regarding whether the consistent with primary EU law. The feeling within Germany is clearly that the ECB has overstepped its mandate and constitutes monetary financing of member states. However, this OMT programme provided a crucial backstop to sovereign debt and thus allowed the eurozone to survive during the height of the crisis. To some extent, the OMT programme is significantly less important than it was when introduced and that takes some of the sensitivity away from the issue. It is also worth bearing in mind that this ruling will largely be seen as advice to the Germans and thus the final decision from the German constitutional court will be more important. Nevertheless, it’s worth watching out for this event despite the fact that I think it will somewhat go under the radar for many.
Asian & Oceania
A distinct lack of market moving events within Asia means that we are looking towards Australia to provide volatility overnight and from that perspective, it is going to be Thursday’s jobs report which is by far the most interesting event of note. Unfortunately the trend for Australian unemployment has been far from impressive, with the 2008 low of 4% leading to a consistent rise towards the 6.3% level seen last month. Expectations point towards the figure remaining steady, but at some point we need to see a turnaround of sorts and that clearly has not been happening. The only beneficial figure which we have been seeing is the employment change figure, which has been positive for the past two readings. On this occasion, the expectation is that this number will pull back somewhat towards around 3.8k from 42.7k.
With a big week in the market just gone, trading activity and excitement seems to have built up given the volatility seen as a result of the plummeting oil prices and continued talk of the possible introduction of a QE programme by the ECB later this month. The week ahead looks somewhat more mixed, with real major releases somewhat few and far between. In the US, the release of retail sales provides us with a greater degree of understanding regarding consumer behaviour. Meanwhile in the UK the CPI figure due out on Tuesday is going to be absolutely crucial following the oil induced fall into deflation for the eurozone. On the topic of the eurozone, the European court of justice ruling on Wednesday will bring the validity of the OMT programme back to the fore.
In Asia, the lack of any major releases means that we will be looking towards Australia as the main source of overnight newsflow. The Australian jobs report on Thursday represents the most significant release to watch out for.
US
The US region has by far the most significant events this week, given the somewhat thin week ahead for most countries. That being said, there are few that genuinely provide a significant likeliness of volatility following their release. Of the events to watch out for, the retail sales figure on Wednesday along with Friday’s CPI and consumer sentiment survey releases are the ones I am most keenly following.
The first of these is also possibly the most important, with the retail sales number representing the tangible result of both consumer sentiment and spending behaviour in December. Given that December is such a crucial month for the retail sector, all eyes will be focused on this number, following a strong November reading. The black Friday to cyber Monday trend seen throughout the US means that alot of the Christmas purchases are likely to have been made either in November or at a discounted price. For this reason, there are a number of people who believe we are going to see a weak number this month and the consensus is that there will only be a 0.1% rate of increase compared to the 0.7% figure in November. Given that the US economy is massively driven by consumer spending and behaviour, be aware that spending figures provide a great indication of economic activity in December which will no doubt impact growth figures.
On Friday, the US CPI figure is released, with many now watching closer than ever following the incessant fall in oil prices and the impact that is expected to have upon the inflation rates. In the US, the main measure of price growth is the PCE price index and for this reason, the CPI level is somewhat less crucial than in countries such as the UK and eurozone. However, given that the eurozone saw deflation in December it is going to be crucial to see whether this is going to be a global trend where falling oil prices push all the headline inflation rates lower. Should we see this week’s CPI figure fall lower than the -0.3% seen last month, it could be a cause for concern at the Fed and may indicate softness in the PCE number later this month.
Finally, the release of the University of Michigan consumer sentiment figure brings yet another focus upon the outlook of consumers in the US. Given that so much of the US economic growth can be attributed to domestic spending, a confident consumer base is key to seeing more of the strong GDP figures that have been evident in the US throughout 2014.
UK
A quiet week in the UK, where the biggest release to be watching out for will be Tuesday’s CPI release, following the global impact of falling oil prices. Much like the eurozone, the most important inflation reading in the UK is the CPI figure and in the same way that the ECB is expected to introduce QE as a result of falling inflation levels, the BoE will be watching very closely to see if any further downside in CPI will impact their monetary policy decisions. The likeliness is that should we see that move lower in inflation to any major degree, it will serve to reduce the likeliness of a rate hike in the near future. With that in mind, the yearly figure is expected to pull back from 1% to 0.7% for December. That is likely to be largely driven by oil prices, and given that the eurozone saw a fall from 0.3% to -0.2%, there is reason to believe it could an be even bigger fall. With the target rate of inflation set at 2% for the BoE, any move below 0.7% could bring serious anxiety at the BoE, limiting their ability to tighten monetary policy anytime soon.
Eurozone
Yet another quiet week in prospect in the eurozone, where the only major event of note comes in the form of a hearing at the European court of Justice, where the validity of the OMT programme comes under the spotlight. This follows the decision from the German Federal Constitutional Court to refer a list of questions to the European court regarding whether the consistent with primary EU law. The feeling within Germany is clearly that the ECB has overstepped its mandate and constitutes monetary financing of member states. However, this OMT programme provided a crucial backstop to sovereign debt and thus allowed the eurozone to survive during the height of the crisis. To some extent, the OMT programme is significantly less important than it was when introduced and that takes some of the sensitivity away from the issue. It is also worth bearing in mind that this ruling will largely be seen as advice to the Germans and thus the final decision from the German constitutional court will be more important. Nevertheless, it’s worth watching out for this event despite the fact that I think it will somewhat go under the radar for many.
Asian & Oceania
A distinct lack of market moving events within Asia means that we are looking towards Australia to provide volatility overnight and from that perspective, it is going to be Thursday’s jobs report which is by far the most interesting event of note. Unfortunately the trend for Australian unemployment has been far from impressive, with the 2008 low of 4% leading to a consistent rise towards the 6.3% level seen last month. Expectations point towards the figure remaining steady, but at some point we need to see a turnaround of sorts and that clearly has not been happening. The only beneficial figure which we have been seeing is the employment change figure, which has been positive for the past two readings. On this occasion, the expectation is that this number will pull back somewhat towards around 3.8k from 42.7k.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
UK Opening Call from Alpari UK - 12 January 2015
Good morning,
The week ahead may not have as much to offer as the one just gone when it comes to hard hitting economic events, but with oil prices already making some significant moves overnight it would take a brave person to bet against these high levels of market volatility continuing.
At times last week investors were starting to feel a little bit more bullish as oil prices began to stabilise around $50 a barrel for Brent crude, giving equities the opportunity to pare some of the losses that have come with the decline in oil prices. However, that was only to last a couple of days with Friday bringing more volatility as oil prices dipped below the psychologically important $50 level and the US released it's widely followed jobs report which was seen as largely positive by the markets.
Brent may have recovered to close back above $50 at the end of the week but with prices opening lower overnight and now trading around $49.30, I think we're going to see plenty more volatility in the coming days as pressure mounts on oil producers to scale back production before prices get dangerously low.
Many people view $40 to be the level at which some producers may start to seriously struggle and be forced into cutting production. While many US shale companies may be hedged against these low prices for now, they're also quite heavily in debt and require prices to be much higher if they're going to be able to maintain the current levels of output. OPEC is effectively banking on this and I don't think we're too far away from that now. Oil may not have bottomed out quite yet but I think some of the bigger players in the markets may start to look at prices being quite cheap and see some good buying opportunities.
While oil is likely to continue to be a major driver in the markets this week, today also marks the unofficial start of US earnings season with Alcoa releasing fourth quarter results this evening. With the likes of JP Morgan, Goldman Sachs and Wells Fargo following this week, any stabilisation in oil prices may shift the focus to company earnings, especially with the week being so quiet on the economic data front.
The FTSE is expected to open 5 points higher, the CAC 11 points higher and the DAX 37 points higher.
Good morning,
The week ahead may not have as much to offer as the one just gone when it comes to hard hitting economic events, but with oil prices already making some significant moves overnight it would take a brave person to bet against these high levels of market volatility continuing.
At times last week investors were starting to feel a little bit more bullish as oil prices began to stabilise around $50 a barrel for Brent crude, giving equities the opportunity to pare some of the losses that have come with the decline in oil prices. However, that was only to last a couple of days with Friday bringing more volatility as oil prices dipped below the psychologically important $50 level and the US released it's widely followed jobs report which was seen as largely positive by the markets.
Brent may have recovered to close back above $50 at the end of the week but with prices opening lower overnight and now trading around $49.30, I think we're going to see plenty more volatility in the coming days as pressure mounts on oil producers to scale back production before prices get dangerously low.
Many people view $40 to be the level at which some producers may start to seriously struggle and be forced into cutting production. While many US shale companies may be hedged against these low prices for now, they're also quite heavily in debt and require prices to be much higher if they're going to be able to maintain the current levels of output. OPEC is effectively banking on this and I don't think we're too far away from that now. Oil may not have bottomed out quite yet but I think some of the bigger players in the markets may start to look at prices being quite cheap and see some good buying opportunities.
While oil is likely to continue to be a major driver in the markets this week, today also marks the unofficial start of US earnings season with Alcoa releasing fourth quarter results this evening. With the likes of JP Morgan, Goldman Sachs and Wells Fargo following this week, any stabilisation in oil prices may shift the focus to company earnings, especially with the week being so quiet on the economic data front.
The FTSE is expected to open 5 points higher, the CAC 11 points higher and the DAX 37 points higher.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
UK Opening Call from Alpari UK on 13 January 2015
Oil continues slide despite record Chinese crude imports
• Oil prices tumble again, weighing heavily on the energy sector;
• More reports of ECB QE supporting European stocks despite plans appearing flawed;
• Record Chinese crude imports fail to provide any support for oil;
• UK inflation in focus in quiet day of economic releases.
Another sharp decline in oil prices overnight weighed heavily on US energy stocks, while in Asia a better than expected trade balance update from China helped support stocks in the region.
As is quite often the case at the moment, oil prices are largely dictating play in the financial markets with energy companies acting as a major drag on the markets despite the fact that people are generally in agreement that lower oil prices are actually a net positive for the global economy. Of course, energy companies and countries heavily reliant on oil revenues will not be pleased to see the decline but overall, it's difficult not to see this as a good thing.
With the upside to lower oil prices being overlooked at the moment, I wonder if there's a strong rally in equity markets just around the corner, once oil prices begin to stabilise. I don't think this stabilisation is too far away with $40 widely seen as being a very significant barrier for prices. This should come around the time that consumers really start to see the benefit of the last 6 months slide in prices, with one place in Birmingham already selling petrol below £1 a litre, something we haven't really seen since around October 2007. Once the savings begin to filter through to the public then I expect to see a big upturn in spending in other areas such as retail.
It was interesting to see how little an impact the Chinese trade balance figures had on oil prices overnight, as they continued to tumble despite the world's second largest economy importing a record amount of crude, above 7 million barrels per day. This clearly shows that while global demand may be weaker that it's been in the past, the collapse of oil prices really is largely driven by the supply glut and the demand side just isn't helping matters. Overall the trade figures were encouraging although domestic demand really does remain quite weak, despite efforts being made to boost it, meaning Chinese exports are still hugely important to the country as it attempts to shift towards a more domestically driven economy.
European stocks were very resilient against the slide in oil prices yesterday and ahead of today's open, it looks like we're going to see more of the same. Yesterday's reports that the European Central Bank is drawing up plans for a quantitative easing program based on the contributions of the country to the central bank gave a significant boost to European stocks. As was the case when the US was buying bonds, we tend to see inflated prices in stocks and bonds and this is exactly what investors are preparing for now.
Aside from the additional liquidity that this will throw into the financial system, I don't really see how this will help the eurozone in any way. Countries like Germany will benefit most from the bond buying program as they make the largest contributions but with yields already below 0.5% on 10 year debt, I don't see how this will make much of a difference. If we do see this announced by the ECB when it meets next week, unless it's accompanied by efforts to improve the movement of cash to the areas where its needed most, as well as initiatives to boost demand, I think it's going to get a lot of criticism. The only positive thing would be that unlikely many of their initiatives in the last 12 months, this should succeed in growing the central banks balance sheet, even if the aid is going to the wrong places.
We have another quiet day in store with regards to economic data, with UK inflation figures the only notable readings this morning. While these are worth keeping a close eye on, expectations for the first Bank of England rate hike have been put back so far now - early 2016 in many people's opinions - due to the central banks admission that inflation is likely to fall further, that there's not much to read into today's numbers. Unless we get a much larger than expected decline, that is, which could suggest that the disinflation problem is much greater than the BoE is anticipating.
The FTSE is expected to open 7 points lower, the CAC 4 points lower and the DAX 5 points higher.
Oil continues slide despite record Chinese crude imports
• Oil prices tumble again, weighing heavily on the energy sector;
• More reports of ECB QE supporting European stocks despite plans appearing flawed;
• Record Chinese crude imports fail to provide any support for oil;
• UK inflation in focus in quiet day of economic releases.
Another sharp decline in oil prices overnight weighed heavily on US energy stocks, while in Asia a better than expected trade balance update from China helped support stocks in the region.
As is quite often the case at the moment, oil prices are largely dictating play in the financial markets with energy companies acting as a major drag on the markets despite the fact that people are generally in agreement that lower oil prices are actually a net positive for the global economy. Of course, energy companies and countries heavily reliant on oil revenues will not be pleased to see the decline but overall, it's difficult not to see this as a good thing.
With the upside to lower oil prices being overlooked at the moment, I wonder if there's a strong rally in equity markets just around the corner, once oil prices begin to stabilise. I don't think this stabilisation is too far away with $40 widely seen as being a very significant barrier for prices. This should come around the time that consumers really start to see the benefit of the last 6 months slide in prices, with one place in Birmingham already selling petrol below £1 a litre, something we haven't really seen since around October 2007. Once the savings begin to filter through to the public then I expect to see a big upturn in spending in other areas such as retail.
It was interesting to see how little an impact the Chinese trade balance figures had on oil prices overnight, as they continued to tumble despite the world's second largest economy importing a record amount of crude, above 7 million barrels per day. This clearly shows that while global demand may be weaker that it's been in the past, the collapse of oil prices really is largely driven by the supply glut and the demand side just isn't helping matters. Overall the trade figures were encouraging although domestic demand really does remain quite weak, despite efforts being made to boost it, meaning Chinese exports are still hugely important to the country as it attempts to shift towards a more domestically driven economy.
European stocks were very resilient against the slide in oil prices yesterday and ahead of today's open, it looks like we're going to see more of the same. Yesterday's reports that the European Central Bank is drawing up plans for a quantitative easing program based on the contributions of the country to the central bank gave a significant boost to European stocks. As was the case when the US was buying bonds, we tend to see inflated prices in stocks and bonds and this is exactly what investors are preparing for now.
Aside from the additional liquidity that this will throw into the financial system, I don't really see how this will help the eurozone in any way. Countries like Germany will benefit most from the bond buying program as they make the largest contributions but with yields already below 0.5% on 10 year debt, I don't see how this will make much of a difference. If we do see this announced by the ECB when it meets next week, unless it's accompanied by efforts to improve the movement of cash to the areas where its needed most, as well as initiatives to boost demand, I think it's going to get a lot of criticism. The only positive thing would be that unlikely many of their initiatives in the last 12 months, this should succeed in growing the central banks balance sheet, even if the aid is going to the wrong places.
We have another quiet day in store with regards to economic data, with UK inflation figures the only notable readings this morning. While these are worth keeping a close eye on, expectations for the first Bank of England rate hike have been put back so far now - early 2016 in many people's opinions - due to the central banks admission that inflation is likely to fall further, that there's not much to read into today's numbers. Unless we get a much larger than expected decline, that is, which could suggest that the disinflation problem is much greater than the BoE is anticipating.
The FTSE is expected to open 7 points lower, the CAC 4 points lower and the DAX 5 points higher.
Read the full report at Alpari News Room
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