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- Thread starter Alpari
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Alpari
Alpari Representative
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- 122
UK Opening Call from Alpari UK on 11 December 2014
Europe seen carrying losing streak into fourth day
• Fourth quarter off to a bad start as Japanese machine orders break four month winning streak;
• Australian jobs report shows signs of stabilisation;
• US data the focus today, with retail sales and jobless claims to come this afternoon.
European indices look set to continue their downward spiral this week and more disappointing data from Japan and a very negative end to the US session on Wednesday weigh on investor sentiment.
There is certainly a more risk averse feel to this week, probably largely driven by a lack of economic data or announcements, not to mention all the negative speculation earlier in the week relating to the Fed, the Greek Presidential election risk and the sell-off in Chinese stocks on Tuesday. On top of this, the more important data has come from China and Japan and has been discouraging, to say the least.
This trend continued overnight as Japanese machine orders for October broke a four month winning streak to get the final quarter off to a dreadful start. After the country entered recession in the third quarter, it was hoped that the impact of April’s sales tax hike would begin to fade and the economy would bounce back in the current quarter, bringing the country out of recession in the process.
While I still believe this will happen, it’s got off to a rotten start, with capital spending by companies falling by 6.4% on a month by month basis, and 4.9% compared to a year ago. On the one hand this may suggest that confidence in the economic outlook and by extension, Abenomics, is faltering which would be very worrying. On the other hand, this is only one bad figure in five and it could therefore just be a bad month. The important thing now is whether we’ll see it bounce back in November. If it does, then this figure is almost irrelevant as it would no longer suggest a reversal in the longer trend of rising investment.
Still, this appears to have been enough to spook the markets once again, although this week, it doesn’t seem to take much. I still believe that investors are using this quieter week to allow the markets to correct a little and create opportunity, something which is maybe hard to come by around the current levels.
On a more positive note, the Australian jobs report offered a little more optimism in a country that’s going through a rough time at the moment as it attempts to rebalance the economy and remove its reliance on the once booming mining sector. Unemployment has been slowly creeping up in recent years and did so again in November, rising to 6.3% in line with expectations. However, there are signs of stabilisation, which may suggest the country is turning a corner and may not need further assistance, in the form of a rate cut, from the Reserve Bank of Australia, with interest rates already at record lows.
Employment rose by 42,700 last month which was well ahead of expectations of 15,000, while the participation rate also rose slightly to 64.7%. The only worrying thing was that part-time employment made up 40,800 of those jobs but that is to be expected at this stage of the recovery and will surely improve next year.
While there is a lot of economic data being released in the European session, it’s going to be another fairly quiet morning as the majority of it is low impact so markets don’t pay much attention. Later on in the US though, we will get the latest retail sales and jobless claims numbers so things are likely to pick up this afternoon.
The FTSE is expected to open 23 points lower, the CAC 21 points lower and the DAX 47 points lower.
Europe seen carrying losing streak into fourth day
• Fourth quarter off to a bad start as Japanese machine orders break four month winning streak;
• Australian jobs report shows signs of stabilisation;
• US data the focus today, with retail sales and jobless claims to come this afternoon.
European indices look set to continue their downward spiral this week and more disappointing data from Japan and a very negative end to the US session on Wednesday weigh on investor sentiment.
There is certainly a more risk averse feel to this week, probably largely driven by a lack of economic data or announcements, not to mention all the negative speculation earlier in the week relating to the Fed, the Greek Presidential election risk and the sell-off in Chinese stocks on Tuesday. On top of this, the more important data has come from China and Japan and has been discouraging, to say the least.
This trend continued overnight as Japanese machine orders for October broke a four month winning streak to get the final quarter off to a dreadful start. After the country entered recession in the third quarter, it was hoped that the impact of April’s sales tax hike would begin to fade and the economy would bounce back in the current quarter, bringing the country out of recession in the process.
While I still believe this will happen, it’s got off to a rotten start, with capital spending by companies falling by 6.4% on a month by month basis, and 4.9% compared to a year ago. On the one hand this may suggest that confidence in the economic outlook and by extension, Abenomics, is faltering which would be very worrying. On the other hand, this is only one bad figure in five and it could therefore just be a bad month. The important thing now is whether we’ll see it bounce back in November. If it does, then this figure is almost irrelevant as it would no longer suggest a reversal in the longer trend of rising investment.
Still, this appears to have been enough to spook the markets once again, although this week, it doesn’t seem to take much. I still believe that investors are using this quieter week to allow the markets to correct a little and create opportunity, something which is maybe hard to come by around the current levels.
On a more positive note, the Australian jobs report offered a little more optimism in a country that’s going through a rough time at the moment as it attempts to rebalance the economy and remove its reliance on the once booming mining sector. Unemployment has been slowly creeping up in recent years and did so again in November, rising to 6.3% in line with expectations. However, there are signs of stabilisation, which may suggest the country is turning a corner and may not need further assistance, in the form of a rate cut, from the Reserve Bank of Australia, with interest rates already at record lows.
Employment rose by 42,700 last month which was well ahead of expectations of 15,000, while the participation rate also rose slightly to 64.7%. The only worrying thing was that part-time employment made up 40,800 of those jobs but that is to be expected at this stage of the recovery and will surely improve next year.
While there is a lot of economic data being released in the European session, it’s going to be another fairly quiet morning as the majority of it is low impact so markets don’t pay much attention. Later on in the US though, we will get the latest retail sales and jobless claims numbers so things are likely to pick up this afternoon.
The FTSE is expected to open 23 points lower, the CAC 21 points lower and the DAX 47 points lower.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
UK Opening Call from Alpari UK on 12 December 2014
Europe back in the red as oil falls to five and a half year low
• Oil price decline unwinds some of the retail sales gains overnight;
• WTI crude hits five and a half year low, falling below $60 a barrel;
• US government avoids shut down as spending bill narrowly passes;
• Mixed Chinese data as better retail sales offset disappointing industrial production;
• Few data points of note today but nothing major.
European indices are expected to open deep in the red on Friday, as a negative end to the US session overnight feeds through into Asian and European markets as we head into week end.
It was all looking rosy during the US session yesterday, retail sales data was much better than expected thanks to better holiday spending as consumers and retailers begin the feel the benefit of lower prices at the pump. However, as the session wore on and oil prices continued to tumble, energy stocks really started to feel the pressure of US crude falling below the psychologically important $60 a barrel level.
It's been another bad week for energy stocks, with oil prices falling more than 9% as OPEC - which accounts for one third of global oil production - cut its 2015 demand forecasts to the lowest in more than a decade, while at the same time its most influential member, the Saudi's, continued to deny that there would be any slow down in production. It's a battle over market share at the moment and no one wants to back down. The supply glut in the oil market saw inventories in the US grow again this week, helping to further weigh on oil prices. The decline in oil prices is showing no signs of slowing which would suggest that $50 a barrell is quite likely and soon.
The move to a five and a half year low in US crude was accompanied by concerns over another government in the US as the House attempted to block a spending bill that would have prompted a repeat of the deeply unpopular events of 2013. Fortunately, a last minute deal, as has become the norm with Congress nowadays, was struck and the bill managed to scrape through by 219 votes to 206.
Oil prices really are a big market driver at the moment, whether it be for good (consumer spending) or bad (energy companies) reasons. It was a little surprising not to see further declines following the release of Chinese industrial production figures for November which grew at a slower than expected 7.2%, well below forecasts of 7.5%.
I say it was only a little surprising as Beijing factories were forced to temporarily close last month in order to ease pollution ahead of the Asia-Pacific Economic Cooperation (APEC) summit, which will have slowed production, the only question is by how much. Clearly markets had factored in a bigger disappointment than forecasts were suggesting as we're not seeing any other evidence of oil prices stabilising.
The other Chinese data released overnight was retail sales and urban investment. The latter was in line with expectations and slightly down from last month at 15.8%, while retail sales rose ahead of expectations by 11.7%, the highest since August. With the country looking to move towards the consumer driven model in the future, a rise in consumer spending is going to be important in offsetting any slowdown in government investment and exports.
Today, like most of the week so far, offers plenty of economic data but most of it is viewed as tier one, meaning the potential for market moves off the back of them is low. Of interest is the employment change and industrial production figures from the eurozone and PPI inflation and UoM consumer sentiment readings from the US, but even most of these are unlikely to have much of an impact on markets.
The FTSE is expected to open 80 points lower, the CAC 45 points lower and the DAX 100 points lower.
Europe back in the red as oil falls to five and a half year low
• Oil price decline unwinds some of the retail sales gains overnight;
• WTI crude hits five and a half year low, falling below $60 a barrel;
• US government avoids shut down as spending bill narrowly passes;
• Mixed Chinese data as better retail sales offset disappointing industrial production;
• Few data points of note today but nothing major.
European indices are expected to open deep in the red on Friday, as a negative end to the US session overnight feeds through into Asian and European markets as we head into week end.
It was all looking rosy during the US session yesterday, retail sales data was much better than expected thanks to better holiday spending as consumers and retailers begin the feel the benefit of lower prices at the pump. However, as the session wore on and oil prices continued to tumble, energy stocks really started to feel the pressure of US crude falling below the psychologically important $60 a barrel level.
It's been another bad week for energy stocks, with oil prices falling more than 9% as OPEC - which accounts for one third of global oil production - cut its 2015 demand forecasts to the lowest in more than a decade, while at the same time its most influential member, the Saudi's, continued to deny that there would be any slow down in production. It's a battle over market share at the moment and no one wants to back down. The supply glut in the oil market saw inventories in the US grow again this week, helping to further weigh on oil prices. The decline in oil prices is showing no signs of slowing which would suggest that $50 a barrell is quite likely and soon.
The move to a five and a half year low in US crude was accompanied by concerns over another government in the US as the House attempted to block a spending bill that would have prompted a repeat of the deeply unpopular events of 2013. Fortunately, a last minute deal, as has become the norm with Congress nowadays, was struck and the bill managed to scrape through by 219 votes to 206.
Oil prices really are a big market driver at the moment, whether it be for good (consumer spending) or bad (energy companies) reasons. It was a little surprising not to see further declines following the release of Chinese industrial production figures for November which grew at a slower than expected 7.2%, well below forecasts of 7.5%.
I say it was only a little surprising as Beijing factories were forced to temporarily close last month in order to ease pollution ahead of the Asia-Pacific Economic Cooperation (APEC) summit, which will have slowed production, the only question is by how much. Clearly markets had factored in a bigger disappointment than forecasts were suggesting as we're not seeing any other evidence of oil prices stabilising.
The other Chinese data released overnight was retail sales and urban investment. The latter was in line with expectations and slightly down from last month at 15.8%, while retail sales rose ahead of expectations by 11.7%, the highest since August. With the country looking to move towards the consumer driven model in the future, a rise in consumer spending is going to be important in offsetting any slowdown in government investment and exports.
Today, like most of the week so far, offers plenty of economic data but most of it is viewed as tier one, meaning the potential for market moves off the back of them is low. Of interest is the employment change and industrial production figures from the eurozone and PPI inflation and UoM consumer sentiment readings from the US, but even most of these are unlikely to have much of an impact on markets.
The FTSE is expected to open 80 points lower, the CAC 45 points lower and the DAX 100 points lower.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
US Opening Call from Alpari UK on 12 December 2014
Focus remains on US consumer after retail sales surprise
Oil prices are weighing heavily on European stocks again on Friday as the sell-off after the close on Thursday finally gets its opportunity to impact energy companies on this side of the pond. That said, US futures are also looking very heavy ahead of the open, suggesting that risk aversion is continuing to spread throughout global markets this week.
The break below $60 a barrel in WTI crude appears to be quite a significant psychological move that could well add to its already bearish outlook. With this level broken, barring any fundamental change, we could see some support around $58.32, a previous support, but I think $56 will be more significant having acted as support and resistance on numerous occasions. While many are looking to $50 as the potential floor, $53.54 may prove to be a major barrier with the 240-month SMA having been so at the end of 2008 and start of 2009.
We could also look to the Chinese data overnight as a reason why equity markets are finding themselves back in the red following a single days reprieve. However, the fact that we haven’t seen negative ramifications for arguably the asset most sensitive to the Chinese industrial production figures – oil – would suggest people weren’t too disappointed with the drop to 7.2%. Instead, it’s more likely that this was driven by the temporary closure of Chinese factories ahead of the Asia-Pacific Economic Cooperation (APEC) summit in an effort to reduce pollution, something that markets may have factored in ahead of the release.
I think this is just a week when the lack of positive news flow and meaningful data releases has potentially created an opportunity for investors to lock in some profits and wait for some more attractive levels. There is some data to come today and there’ll be particular interest on the preliminary UoM consumer sentiment figure for December, one of the most important months for all retailers. With retail sales yesterday surprising to the upside and consumers feeling a little more flush thanks to falling prices at the pump, I wouldn’t be surprised to see a number above expectations which may give markets one final lift into the week’s close.
The S&P is expected to open 12 points higher, the Dow 110 points higher and the Nasdaq 30 points higher.
Focus remains on US consumer after retail sales surprise
Oil prices are weighing heavily on European stocks again on Friday as the sell-off after the close on Thursday finally gets its opportunity to impact energy companies on this side of the pond. That said, US futures are also looking very heavy ahead of the open, suggesting that risk aversion is continuing to spread throughout global markets this week.
The break below $60 a barrel in WTI crude appears to be quite a significant psychological move that could well add to its already bearish outlook. With this level broken, barring any fundamental change, we could see some support around $58.32, a previous support, but I think $56 will be more significant having acted as support and resistance on numerous occasions. While many are looking to $50 as the potential floor, $53.54 may prove to be a major barrier with the 240-month SMA having been so at the end of 2008 and start of 2009.
We could also look to the Chinese data overnight as a reason why equity markets are finding themselves back in the red following a single days reprieve. However, the fact that we haven’t seen negative ramifications for arguably the asset most sensitive to the Chinese industrial production figures – oil – would suggest people weren’t too disappointed with the drop to 7.2%. Instead, it’s more likely that this was driven by the temporary closure of Chinese factories ahead of the Asia-Pacific Economic Cooperation (APEC) summit in an effort to reduce pollution, something that markets may have factored in ahead of the release.
I think this is just a week when the lack of positive news flow and meaningful data releases has potentially created an opportunity for investors to lock in some profits and wait for some more attractive levels. There is some data to come today and there’ll be particular interest on the preliminary UoM consumer sentiment figure for December, one of the most important months for all retailers. With retail sales yesterday surprising to the upside and consumers feeling a little more flush thanks to falling prices at the pump, I wouldn’t be surprised to see a number above expectations which may give markets one final lift into the week’s close.
The S&P is expected to open 12 points higher, the Dow 110 points higher and the Nasdaq 30 points higher.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
Weekly market preview from Alpari UK – 15 December 2014
The markets are set for a major week, where almost every region is expected to see something that could really provide volatility. In the US, the focus will certainly be upon Janet Yellen and the FOMC when they decide whether to keep their statement the same or not. In the UK, the jobs report looks set to provide an insight into the health of the labour market in November. Meanwhile, the eurozone PMI figures are going to be crucial following disappointing figures last month.
In Asia, the Japanese snap elections on Sunday are going to provide the setup to a big week which ends in the latest BoJ decision on Friday. On he other hand, the Chinese focus looks to be upon the HSBC manufacturing PMI which represents the only event of note to watch out for. Finally, the Australian traders will be well aware of the release of RBA minutes on Tuesday following the recent decision to keep rates stable.
US
A crucial week in the US markets, predominantly due to the release of the FOMC monetary policy decision on Wednesday. However, with the release of data points such as the CPI and the Philly Fed manufacturing index also being released, there is more to look out for other than the FOMC.
That being said, Wednesday’s FOMC meeting is certainly the main event of the week given the impact that this month’s jobs report has had upon expectations of a shift in tone this week. No change in actual policy is expected given the fact that the earliest most analysts see any change is mid to late 2015. However, the tone of the statement is going to be absolutely crucial this week, with many expecting Janet Yellen to remove the ‘considerable time’ comment with regards to how long rates would remain at the current lows. This month’s jobs report was overwhelmingly positive, with payrolls, average earnings and hours worked all improving. As a result, Yellen will be under greater pressure to make a move, yet with disinflationary pressures likely to persist due to falling oil prices, it is going to be interesting to see whether the committee chooses to keep the comment in or not. Given that opinions are split within the markets, I expect to see some volatility irrespective of the decision by the Fed. Also be aware that the Fed are due to release the latest FOMC economic projections, with growth and inflation the most important to watch out for in terms of any revisions.
Also on Wednesday, the latest US CPI figure will provide greater clarity upon whether the disinflationary pressures that have been evident amongst the likes of the UK, China, Japan and most notably the eurozone. As yet, the US has remained relatively resilient, with last month’s reading of 1.7% representing a pretty untroubling figure for the Fed. However, the global trend is certainly to the downside and thus it will be interesting to see if this is finally represented in the US. Should we see a big move lower, it could impact future expectations of monetary policy at the Fed. Expectations point towards a fall from 0% to -0.1% on a month-on-month basis.
UK
A big week ahead in the UK, where the bank stress test results, CPI figure and jobs report means that we will certainly have alot to get stuck into as the week progresses. Tuesday’s stress test results will be watched closely within the markets, with particular attention being paid by those investing in the banking sector. Given the size and importance of the banking sector in the UK, it is going to be absolutely crucial to know that the top banks are adequately prepared for a potential crash going forward. Whilst we have seen the results from the European stress tests not so long ago, this round of tests are expected to be tougher and thus there is likely to be a higher fail rate. Unlike the European tests, this will be a small scale thing, comprising of just the eight largest lenders. Watch out for how many and by how much different banks have failed to gauge exactly how much market impact this could make.
Later on Tuesday, the CPI figure for November is going to provide us with a clear idea of whether inflation is going to continue the downward trajectory seen since the 3.7% peak in 2011. Currently at 1.3%, the threat to BoE policy isn’t massive right now, but with oil prices falling it is clear that as time goes on, there will be downward pressures upon this figure. For the most part, the fall in oil prices will not be felt for the consumer yet at the pump given that oil is generally bought in the futures market and thus any major gas station will generally have prices fixed for a given time frame. However, the likeliness is that once that contract runs out, there will be a fall in petrol prices and thus CPI will fall more sharply. Therefore BoE inflation expectations will certainly be downward in the future months and this means that I expect CPI to continue to fall going forward. Perhaps not at the rate that the likes of Brent and WTI have been moving for the reasons above but it is likely to be the case that inflation will continue to fall for some time yet.
Given the influence of the oil prices on this figure, it is worthwhile also watching the core CPI figure which strips out volatile elements such as energy. This month both the core and headline figures are expected to remain steady, yet with the influence of oil prices likely to continue to persist, I would expect a greater disparity between the two as we go into 2015.
Wednesday sees the release of the November jobs report, with the claimant count and unemployment rates representing the most commonly watched elements. The jobs market, just like in the US, is absolutely crucial for monetary policy going forward. The outlook from the MPC is likely to be influenced heavily by the jobs data and thus any big move on Wednesday not only impacts the view of how healthy the UK economy and growth is going to be going forward, but also the BoE actions going forward.
The unemployment rate is likely to be the main figure which newspapers grab on to given its simplicity. Therefore people will grab onto this as a gauge of where the UK economy is currently. Market estimates to the figure remaining at 6%, yet with the trend certainly to the downside, I wouldn’t be surprised to see a move lower. The claimant count figure is the more volatile of the two and for that reason it can bring about a greater impact upon the markets. This month’s figure is ex[expected to fall to -22k, from -20.4k last month.
Eurozone
The eurozone region is looking forward to a key week, given the release of the PMI and final CPI figures. The first of these events comes in the form of a whole raft of PMI numbers, which provide a forward looking idea of what each sector is looking like from the perspective of purchasing managers. These figures can typically provide a great indication of what the economy is looking like right now. Given that figures such as jobs and growth data typically lag somewhat, the PMI numbers will give us an idea of which direction they could go in. The most important of these is the German manufacturing PMI and eurozone manufacturing PMI figures owing to their size and proximity to the 50 mark (which separates contraction from expansion). With the German manufacturing PMI currently in contraction at 49.5 and eurozone manufacturing PMI moderately expanding at 50.1, it will be crucial to see if either moves above or below that 50 mark to spark market interests.
Wednesday’s final CPI reading is crucial simply due to the pressure that inflation has placed upon Mario Draghi and the ECB. Following a poor TLTRO takeup, it is expected that the ECB are moving closer to QE and any move lower in this could push him closer towards that move. However, this is a final number and thus we have already seen the first estimate come in at 0.3%. Expectations point towards it remaining there, but any move could really spark interest in the markets.
Asia & Oceania
A big week ahead in Asia, where Japan in particular has alot to look out for given Sundays snap elections and BoJ announcement later in the week. Sunday’s election in Japan took many by surprise given that most do not see Shinzo Abe’s role as being jeopardy at all. The ability to finally end a decade of deflation and poor growth means Abe has a great degree of support in Japan. However, he clearly feels there is the need to gain a greater majority and thus he used this election as a means to both gain that along with the ability to ratify public opinion on the very divisive issue of an increased military force. However, Abe will be less than happy by recent developments, which have seen the economy move into recession. Thus it is unlikely that Abe will gain much ground at this election, yet I also do not think he is going to be suffering too much given the impact his measures have had. Therefore I do not think we will see too much of a difference in the voting and ultimately I believe Abe will be re-elected quite comfortably.
Friday sees the BoJ make yet another crucial decision in relation to monetary policy, following a much more dovish stance in recent months. The decision to ease further, raising asset purchases from 50 to 80 trillion yen was a big surprise and has led to major selling of the currency in the FX markets. However, with disinflation persisting and the country now in recession, it is possible we could see another move in the next few months. Therefore keep a keen eye out for this release as a potential source of volatility.
Finally, the Chinese HSBC manufacturing PMI figure is going to be the only figure out of China to be watching out for. This focuses predominantly upon the smaller to medium sized firms (SMEs) and thus any downturn in the region will often show on this measure first. Given last month’s number of 50, the measure is teetering on contraction, leading many to believe we could see that fall back below 50 following 5 months of positive growth. Therefore, keep on the look out for a potential drop below 50 to spark off fears of yet another deterioration in the Chinese region which typically has an impact upon the global market sentiment.
The markets are set for a major week, where almost every region is expected to see something that could really provide volatility. In the US, the focus will certainly be upon Janet Yellen and the FOMC when they decide whether to keep their statement the same or not. In the UK, the jobs report looks set to provide an insight into the health of the labour market in November. Meanwhile, the eurozone PMI figures are going to be crucial following disappointing figures last month.
In Asia, the Japanese snap elections on Sunday are going to provide the setup to a big week which ends in the latest BoJ decision on Friday. On he other hand, the Chinese focus looks to be upon the HSBC manufacturing PMI which represents the only event of note to watch out for. Finally, the Australian traders will be well aware of the release of RBA minutes on Tuesday following the recent decision to keep rates stable.
US
A crucial week in the US markets, predominantly due to the release of the FOMC monetary policy decision on Wednesday. However, with the release of data points such as the CPI and the Philly Fed manufacturing index also being released, there is more to look out for other than the FOMC.
That being said, Wednesday’s FOMC meeting is certainly the main event of the week given the impact that this month’s jobs report has had upon expectations of a shift in tone this week. No change in actual policy is expected given the fact that the earliest most analysts see any change is mid to late 2015. However, the tone of the statement is going to be absolutely crucial this week, with many expecting Janet Yellen to remove the ‘considerable time’ comment with regards to how long rates would remain at the current lows. This month’s jobs report was overwhelmingly positive, with payrolls, average earnings and hours worked all improving. As a result, Yellen will be under greater pressure to make a move, yet with disinflationary pressures likely to persist due to falling oil prices, it is going to be interesting to see whether the committee chooses to keep the comment in or not. Given that opinions are split within the markets, I expect to see some volatility irrespective of the decision by the Fed. Also be aware that the Fed are due to release the latest FOMC economic projections, with growth and inflation the most important to watch out for in terms of any revisions.
Also on Wednesday, the latest US CPI figure will provide greater clarity upon whether the disinflationary pressures that have been evident amongst the likes of the UK, China, Japan and most notably the eurozone. As yet, the US has remained relatively resilient, with last month’s reading of 1.7% representing a pretty untroubling figure for the Fed. However, the global trend is certainly to the downside and thus it will be interesting to see if this is finally represented in the US. Should we see a big move lower, it could impact future expectations of monetary policy at the Fed. Expectations point towards a fall from 0% to -0.1% on a month-on-month basis.
UK
A big week ahead in the UK, where the bank stress test results, CPI figure and jobs report means that we will certainly have alot to get stuck into as the week progresses. Tuesday’s stress test results will be watched closely within the markets, with particular attention being paid by those investing in the banking sector. Given the size and importance of the banking sector in the UK, it is going to be absolutely crucial to know that the top banks are adequately prepared for a potential crash going forward. Whilst we have seen the results from the European stress tests not so long ago, this round of tests are expected to be tougher and thus there is likely to be a higher fail rate. Unlike the European tests, this will be a small scale thing, comprising of just the eight largest lenders. Watch out for how many and by how much different banks have failed to gauge exactly how much market impact this could make.
Later on Tuesday, the CPI figure for November is going to provide us with a clear idea of whether inflation is going to continue the downward trajectory seen since the 3.7% peak in 2011. Currently at 1.3%, the threat to BoE policy isn’t massive right now, but with oil prices falling it is clear that as time goes on, there will be downward pressures upon this figure. For the most part, the fall in oil prices will not be felt for the consumer yet at the pump given that oil is generally bought in the futures market and thus any major gas station will generally have prices fixed for a given time frame. However, the likeliness is that once that contract runs out, there will be a fall in petrol prices and thus CPI will fall more sharply. Therefore BoE inflation expectations will certainly be downward in the future months and this means that I expect CPI to continue to fall going forward. Perhaps not at the rate that the likes of Brent and WTI have been moving for the reasons above but it is likely to be the case that inflation will continue to fall for some time yet.
Given the influence of the oil prices on this figure, it is worthwhile also watching the core CPI figure which strips out volatile elements such as energy. This month both the core and headline figures are expected to remain steady, yet with the influence of oil prices likely to continue to persist, I would expect a greater disparity between the two as we go into 2015.
Wednesday sees the release of the November jobs report, with the claimant count and unemployment rates representing the most commonly watched elements. The jobs market, just like in the US, is absolutely crucial for monetary policy going forward. The outlook from the MPC is likely to be influenced heavily by the jobs data and thus any big move on Wednesday not only impacts the view of how healthy the UK economy and growth is going to be going forward, but also the BoE actions going forward.
The unemployment rate is likely to be the main figure which newspapers grab on to given its simplicity. Therefore people will grab onto this as a gauge of where the UK economy is currently. Market estimates to the figure remaining at 6%, yet with the trend certainly to the downside, I wouldn’t be surprised to see a move lower. The claimant count figure is the more volatile of the two and for that reason it can bring about a greater impact upon the markets. This month’s figure is ex[expected to fall to -22k, from -20.4k last month.
Eurozone
The eurozone region is looking forward to a key week, given the release of the PMI and final CPI figures. The first of these events comes in the form of a whole raft of PMI numbers, which provide a forward looking idea of what each sector is looking like from the perspective of purchasing managers. These figures can typically provide a great indication of what the economy is looking like right now. Given that figures such as jobs and growth data typically lag somewhat, the PMI numbers will give us an idea of which direction they could go in. The most important of these is the German manufacturing PMI and eurozone manufacturing PMI figures owing to their size and proximity to the 50 mark (which separates contraction from expansion). With the German manufacturing PMI currently in contraction at 49.5 and eurozone manufacturing PMI moderately expanding at 50.1, it will be crucial to see if either moves above or below that 50 mark to spark market interests.
Wednesday’s final CPI reading is crucial simply due to the pressure that inflation has placed upon Mario Draghi and the ECB. Following a poor TLTRO takeup, it is expected that the ECB are moving closer to QE and any move lower in this could push him closer towards that move. However, this is a final number and thus we have already seen the first estimate come in at 0.3%. Expectations point towards it remaining there, but any move could really spark interest in the markets.
Asia & Oceania
A big week ahead in Asia, where Japan in particular has alot to look out for given Sundays snap elections and BoJ announcement later in the week. Sunday’s election in Japan took many by surprise given that most do not see Shinzo Abe’s role as being jeopardy at all. The ability to finally end a decade of deflation and poor growth means Abe has a great degree of support in Japan. However, he clearly feels there is the need to gain a greater majority and thus he used this election as a means to both gain that along with the ability to ratify public opinion on the very divisive issue of an increased military force. However, Abe will be less than happy by recent developments, which have seen the economy move into recession. Thus it is unlikely that Abe will gain much ground at this election, yet I also do not think he is going to be suffering too much given the impact his measures have had. Therefore I do not think we will see too much of a difference in the voting and ultimately I believe Abe will be re-elected quite comfortably.
Friday sees the BoJ make yet another crucial decision in relation to monetary policy, following a much more dovish stance in recent months. The decision to ease further, raising asset purchases from 50 to 80 trillion yen was a big surprise and has led to major selling of the currency in the FX markets. However, with disinflation persisting and the country now in recession, it is possible we could see another move in the next few months. Therefore keep a keen eye out for this release as a potential source of volatility.
Finally, the Chinese HSBC manufacturing PMI figure is going to be the only figure out of China to be watching out for. This focuses predominantly upon the smaller to medium sized firms (SMEs) and thus any downturn in the region will often show on this measure first. Given last month’s number of 50, the measure is teetering on contraction, leading many to believe we could see that fall back below 50 following 5 months of positive growth. Therefore, keep on the look out for a potential drop below 50 to spark off fears of yet another deterioration in the Chinese region which typically has an impact upon the global market sentiment.
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Alpari
Alpari Representative
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UK Opening Call from Alpari UK on 15 December 2014
Markets continue lower as Abe retains super-majority
• Oil gaps lower but recovers early in the session to trade above Friday's close;
• Japan's coalition retains super majority in pointless election;
• Confidence in Japanese manufacturing sector slips after country falls into recession;
• PBOC expects 7.1% growth in 2015 which may concern investors;
• Start of the week quiet but things will pick up.
The negativity that drove the US to its worst weekly performance in three years appears to be continuing on Monday as Asian market traded deeply in the red overnight and European futures point to a similar open as well.
The poor performance in equity markets has been driven largely by a lack of economic events and negative speculation, particularly relating to the Fed's statement which is due to be released later this week. This can sometimes happen in quieter weeks, especially when the markets have been on a good run. Investors are looking for a reason to lock in a little profit and any news therefore has a negative twist put on it and reports emerge that spook investors.
The best example of this is the speculation that the Fed is believed to be considering removing its commitment to keeping rates low for a considerable period of time after the end of quantitative easing, which came in October, raising the odds of a rate hike in the middle of next year or even sooner. While this report may be true, we should remember that the same report emerged last month and turned out to be false which suggests to me that it may not be totally trustworthy and instead just be a little fear creeping into the markets.
The main thing weighing on sentiment recently and driving certain equities lower is the continued sell-off in oil, with the decline having continued on Friday having broken through the $60 a barrel level in WTI crude and gapped lower this week. This is particularly hurting energy companies but as we saw last week, the consumer is clearly be nefiting which should be viewed as a positive, particularly for countries like the US and the UK where the consumer is so important to the economy.
Markets largely shrugged off Shinzo Abe's election victory over the weekend as the coalition retained its super majority in a vote that effectively changed absolutely nothing. While Abe's Liberal Democratic Party lost a few seats in the vote, its coalition partner gained a few leaving the coalition no worse off than it was before. While Abe may view this as a vote of confidence from voters, the rest of us are left wondering what the point of this exercise was while the markets couldn't care less. No one expected the result to be any different and nothing has changed.
Of more interest to investors was the Tankan manufacturing index for the fourth quarter which was released overnight and showed a slight turn to the downside, falling from 13 to 12, adding to concerns about an economy that in the third quarter fell into recession. While this is a concern, as the last six months has clearly damaged confidence in the economic outlook, the country is still expected to climb out of recession in the fourth quarter and with this is likely to come an improvement in sentiment so it may not be worth getting too concerned yet.
What investors may find more concerning was the report from the Chinese central bank that claimed growth could fall to 7.1% next year. This fact in itself is not going to shock anyone given the country's performance this year, but given that the central bank forecasts this fall may prompt people to revise lower their forecasts as the likelihood is that it is to the upside of what we can actually expect. This year has taught us that the government and central bank are probably a little over-optimistic while being willing to let growth fall more than they were in the past. Therefore, when they release forecasts like this, we should probably price in below 7% growth and that is what I expect many to do in the coming months.
It's going to be a quiet start to the week, with very little data being released. The New York empire state manufacturing index and industrial production figures are the only notable releases today and even these won't shake things up too much. As the week goes on there's plenty of major events though including the Bank of England minutes and latest FOMC decision on Wednesday and the BoJ decision on Friday so I don't expect it to be quite as slow as the week just gone when it comes to news-flow.
The FTSE is expected to open 51 points lower, the CAC 21 points lower and the DAX 40 points lower.
Markets continue lower as Abe retains super-majority
• Oil gaps lower but recovers early in the session to trade above Friday's close;
• Japan's coalition retains super majority in pointless election;
• Confidence in Japanese manufacturing sector slips after country falls into recession;
• PBOC expects 7.1% growth in 2015 which may concern investors;
• Start of the week quiet but things will pick up.
The negativity that drove the US to its worst weekly performance in three years appears to be continuing on Monday as Asian market traded deeply in the red overnight and European futures point to a similar open as well.
The poor performance in equity markets has been driven largely by a lack of economic events and negative speculation, particularly relating to the Fed's statement which is due to be released later this week. This can sometimes happen in quieter weeks, especially when the markets have been on a good run. Investors are looking for a reason to lock in a little profit and any news therefore has a negative twist put on it and reports emerge that spook investors.
The best example of this is the speculation that the Fed is believed to be considering removing its commitment to keeping rates low for a considerable period of time after the end of quantitative easing, which came in October, raising the odds of a rate hike in the middle of next year or even sooner. While this report may be true, we should remember that the same report emerged last month and turned out to be false which suggests to me that it may not be totally trustworthy and instead just be a little fear creeping into the markets.
The main thing weighing on sentiment recently and driving certain equities lower is the continued sell-off in oil, with the decline having continued on Friday having broken through the $60 a barrel level in WTI crude and gapped lower this week. This is particularly hurting energy companies but as we saw last week, the consumer is clearly be nefiting which should be viewed as a positive, particularly for countries like the US and the UK where the consumer is so important to the economy.
Markets largely shrugged off Shinzo Abe's election victory over the weekend as the coalition retained its super majority in a vote that effectively changed absolutely nothing. While Abe's Liberal Democratic Party lost a few seats in the vote, its coalition partner gained a few leaving the coalition no worse off than it was before. While Abe may view this as a vote of confidence from voters, the rest of us are left wondering what the point of this exercise was while the markets couldn't care less. No one expected the result to be any different and nothing has changed.
Of more interest to investors was the Tankan manufacturing index for the fourth quarter which was released overnight and showed a slight turn to the downside, falling from 13 to 12, adding to concerns about an economy that in the third quarter fell into recession. While this is a concern, as the last six months has clearly damaged confidence in the economic outlook, the country is still expected to climb out of recession in the fourth quarter and with this is likely to come an improvement in sentiment so it may not be worth getting too concerned yet.
What investors may find more concerning was the report from the Chinese central bank that claimed growth could fall to 7.1% next year. This fact in itself is not going to shock anyone given the country's performance this year, but given that the central bank forecasts this fall may prompt people to revise lower their forecasts as the likelihood is that it is to the upside of what we can actually expect. This year has taught us that the government and central bank are probably a little over-optimistic while being willing to let growth fall more than they were in the past. Therefore, when they release forecasts like this, we should probably price in below 7% growth and that is what I expect many to do in the coming months.
It's going to be a quiet start to the week, with very little data being released. The New York empire state manufacturing index and industrial production figures are the only notable releases today and even these won't shake things up too much. As the week goes on there's plenty of major events though including the Bank of England minutes and latest FOMC decision on Wednesday and the BoJ decision on Friday so I don't expect it to be quite as slow as the week just gone when it comes to news-flow.
The FTSE is expected to open 51 points lower, the CAC 21 points lower and the DAX 40 points lower.
Read the full report at Alpari News Room
Alpari
Alpari Representative
- Messages
- 122
Ruble falls 26% from day lows as markets reject 6.5% rate hike
The Russian Ruble is in freefall this morning despite efforts made overnight from the Central Bank of Russia to at least slow the decline. The CBR threw everything including the kitchen sink at the currency problem overnight following the largest one day drop against the dollar since 1998. Initially, the 6.5% rate hike to 17% appeared to have brought some short-term reprieve for the Ruble but unfortunately for the CBR, it was much more short-term than they hoped and it wasn’t long before the markets rejected the central banks efforts and opted to continue on the same course.
Clearly many traders were very grateful to the CBR for giving them such a great opportunity to buy in at such discounted levels. Since the initial pull-back to 58.33, the dollar has sky rocketed more than 26% before settling just above 73. At the time of writing, it doesn’t look like traders are in any way interested in exiting their longs yet, with prices just consolidating. I get the feeling that traders are just taking a breather and there could be some more crazy selling to come in the Ruble.
The Russian Ruble is in freefall this morning despite efforts made overnight from the Central Bank of Russia to at least slow the decline. The CBR threw everything including the kitchen sink at the currency problem overnight following the largest one day drop against the dollar since 1998. Initially, the 6.5% rate hike to 17% appeared to have brought some short-term reprieve for the Ruble but unfortunately for the CBR, it was much more short-term than they hoped and it wasn’t long before the markets rejected the central banks efforts and opted to continue on the same course.
Clearly many traders were very grateful to the CBR for giving them such a great opportunity to buy in at such discounted levels. Since the initial pull-back to 58.33, the dollar has sky rocketed more than 26% before settling just above 73. At the time of writing, it doesn’t look like traders are in any way interested in exiting their longs yet, with prices just consolidating. I get the feeling that traders are just taking a breather and there could be some more crazy selling to come in the Ruble.
Read the full report at Alpari News Room
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