Market Reports and Trade Recommendations by FXPRIMUS

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Market Brief of the Week for 18 August 2014: Jackson Hole Will Decide the Fate of Greenback in the Near Term

Economic Insights

Yellen is expected to be dovish this week

Federal Reserve (Fed) Chair Janet Yellen and European Central Bank (ECB) President Mario Draghi are among the speakers at the Federal Reserve Bank of Kansas City’s conference on the economy and monetary policy in Jackson Hole, Wyoming. Fed Chair Janet Yellen has a stubborn warning light blinking on her labour market dashboard, which indicates that a group of Americans larger than Washington State’s population can find only part-time work. As Yellen heads to this week’s Fed symposium in Jackson Hole, Wyoming, where the focus will be on the labour market, those 7.5 million part-time workers who want full-time jobs are inflating the broad measure of underemployment which she watches to gauge the job market health. Involuntary part-time workers have increased by 325,000 from February’s five-year low.

With employment and inflation nearing Fed goals, Yellen has consistently cautioned that some labour market measures still show enough slack to warrant on keeping interest rates low.

The Fed has planned to release the minutes of its July 29-30 meeting of the Federal Open Market Committee (FOMC) and the Bank of England (BOE) is publishing its minutes from August. U.S. sales of previously owned homes probably will increase to an eight month high in July, a report in the coming week may show.

Some previous conferences have foreshadowed some of the Fed’s biggest policy shifts since the financial crisis. In 2010 and 2012, the then Chairman Ben S. Bernanke signalled new bond buying that has pumped up the Fed’s balance sheet to a record USD 4.43 trillion.

Heading into this year’s Jackson Hole assembly, the labour market is giving off mixed signals even as unemployment falls. About 28% of all part-time workers in July reported that slack business conditions or a dearth of full-time jobs kept them from finding full-time work. That’s up from a 19% share at the start of the downturn.

The U.S. consumer-price index probably rose at the slowest pace in five months. Congressional primaries are taking place in Alaska and Wyoming. ECB President Mario Draghi had a plan to revive the European economy in the form of Targeted Longer-Term Refinancing Operations, or TLTROs. Launched in June this year, the program allowed lenders to apply for funds from the ECB at 10 basis points above the benchmark interest rate, which was cut to a record-low 0.15% in June.

The program was part of a wider package, including a negative deposit rate for the first time, aimed at returning inflation to just below 2%. This month, Draghi called the TLTRO program “very, very attractive” and will lead to a “significant expansion in credit.”

However, on the contrary the reality is singing to a different tune. Analysts this month estimated that banks will borrow 650 billion euros from the TLTROs. That’s down from 710 billion euros estimated in last month’s survey. In July, Draghi said that the maximum size of the program could be about 1 trillion euros. On 7th August, he said market estimates and indications by individual banks pointed to a take up of between 450 billion euros and 850 billion euros.

The reduction show concerns that the outlook for the currency bloc may be too weak to drive demand for loans. More than a quarter of respondents in a recent Bloomberg Survey said conditions will deteriorate in the next four weeks, compared to the 10% in July. Almost half identified inadequate structural reforms as the biggest risk, with 39% citing the Ukraine crisis.

The escalating standoff with Russia threatens to worsen the prospects for the 18-nation euro area, where growth has already ground to a halt and inflation is running at the weakest pace in almost five years. Data last week showed the euro-area recovery unexpectedly halted in the second quarter as the region’s three biggest economies failed to grow.

Germany’s gross domestic product (GDP) fell more than forecasted, France’s economy stagnated for a second straight quarter and Italy succumbed to its third recession since 2008.

 

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Daily Market Report for 19 August 2014: Equities Gain Ahead of the Jackson Hole Meeting


Economic Insights

Global stocks started the week on a firm note amid easing concerns over the situation in Ukraine, while Yellen is expected to act dovish

There was good news regarding the US housing market on Monday, as the National Association of Home Builders’ sentiment index rose up to 55 in August from the previous 53, ahead of market expectations and the highest reading since December.

While there was some scepticism among analysts that the housing market has finally starting to pick up, the picture may only become clearer this week with the release of figures on housing starts and building permits, plus existing and new home sales. But it will be the health condition of the US labour market that takes centre stage on Friday when Mrs Yellen airs her views on the subject.

Global stocks started the week on a firm note amid easing concerns over the situation in Ukraine and a fresh bout of merger and acquisition activity in the US discount retail sector.

But the main focus for the markets were this week’s annual central bank conference in Jackson Hole, Wyoming, which will see Federal Reserve (Fed) chairwoman Janet Yellen speak on Friday about the US labour market. While risk sentiment has turned positive on the news that Ukraine and Russian foreign ministers had met in Berlin over the weekend seeking a solution to the crisis, in truth an agreement is unlikely to happen in the near term and the market is responding positively to the fact that there will be no further escalation unfolded over the weekend.

The Fed’s Jackson Hole symposium will clearly focus on the labour market though we are not expecting any new developments, with Mrs Yellen likely to restate her view that significant slack remains in the labour market. The S&P 500 equity index rose 0.8% to 1,971 overnight, leaving it less than 0.9% below its record closing high, while the Nasdaq Composite closed at a 14-year peak. The Chicago Board Options Exchange (CBOE) Vix index of implied equity volatility, a gauge of the cost of protecting equity portfolios, was down 5.6% at 12.41 in late trade, well off Friday’s intraday high of 14.94.

The Shanghai Composite index climbed up 0.6% to an eight-month high, even after data showed that new home prices fell in 64 out of 70 Chinese cities last month, while foreign direct investment in China dropped 17% from beginning of the year until July.

Australia’s central bank said the nation’s economic outlook remains uncertain because of the conflicting forces that are at play and reiterated that interest rates are set to remain on hold. Members “noted the significant uncertainties around the growth forecast and the importance of considering the risks to the forecast as well as the central projection,” the Reserve Bank of Australia (RBA) said in minutes released today, where it kept the cash rate unchanged at a record-low 2.5%. “Gross Domestic Products (GDP) growth was likely to have slowed to a more moderate pace in the June quarter.”

Governor Glenn Stevens, seeking to stoke the domestic demand to compensate for a slowdown in mining investment, has seen his efforts hampered by an elevated currency. Market pricing shows a higher chance of further policy easing after the nation’s unemployment rate jumped to a 12-year high in July. The RBA cut its growth and inflation forecasts and wage growth stagnated.

The central bank noted the local currency remained “well above” its level in late January even as commodity prices have weakened and rate differentials between Australia and most other advanced economies have narrowed down since then. The Australian dollar, which traded as high as about $1.11 and as low as 80 U.S. cents in the past five years, has remained above 90 cents since March.

 

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Daily Market Report for 20 August 2014: Market Gush Higher Before Federal Open Market Committee (FOMC) Minutes & Jackson Hole Conference


Economic Insights

Janet Yellen’s speech this Friday at the annual Jackson Hole symposium is titled as Re-Evaluating Labour Market Dynamics

China’s property slump worsened in July as prices fell for the third straight month and developers had scaled back their investments, prompting economists to predict that there will be further financial defaults and a slowdown of economic growth in the second half of this year.

Home prices fell in 64 out of the 70 cities, the biggest monthly proportion of declines since records began in July 2005. On average, property prices fell down 0.9% between June and July, the sharpest tumble in three straight months of declines. As prices fell, real estate developers had pulled back from making new investments. Property investments rose 13.7% in the first seven months of the year, down from 14.1% in the first half. In terms of floor space sold in July, China suffered a 16.3% decline, down from a 0.2% drop in June.

Nevertheless, it is agreed that Beijing could yet come to the property market’s rescue later this year, potentially cutting mortgage lending rates and the proportion of deposits that commercial banks are required to hold to at the People’s Bank of China (PBOC), central bank.

In the U.S., Janet Yellen’s speech this Friday at the annual Jackson Hole symposium is titled, with understated simplicity and brevity – “Labour Markets”. The wider symposium is itself themed, “Re-Evaluating Labour Market Dynamics”, and it was expected. Even now, after more than a year of monetary policymakers and academics arguing about the amount of labour market slack and how much it should matter, most of the known unknowns in the debate remain, well, unknown.

In the labour market, conditions have improved further. The unemployment rate, at 6.3 %, is four-tenths lower than at the time of the March meeting, and the broader U-6 measure, which includes marginally attached workers and those working part time but preferring full-time work, has fallen by a similar amount. Even given these declines, however, unemployment remains elevated, and a broader assessment of indicators suggests that underutilization in the labour market remains significant.

Second quarter Gross Domestic Products (GDP) and the employment situation reports since then were strong. But the latest job reports actually revealed that there is an uptick in the unemployment rate, and we also learned that year-on-year inflation actually cooled down slightly in June, the most recent month for which the Personal Consumption Expenditures (PCE) price index has been released. It is obviously too early to say that whether the current trends will hold, but right now Yellen’s stance on labour market slack and her prediction that surprisingly high inflation readings earlier this year would turn out to be “noise” look prescient.

The mere point here is that the conditions now are roughly similar to that of what she said they were two months ago, the economic recovery continues to accelerate after a weather-driven blip in the first quarter. But labour markets have more slack in them than the unemployment rate would suggest, while inflation remains well below the Fed’s objective, and wage growth in particular is still quite low.

 

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Daily Market Report for 21 August 2014: Aussie Slumped After China Manufacturing Data Missed the Estimates According to Federal Reserve (Fed) Minutes


Economic Insights

China manufacturing Purchasing Managers’ Index (PMI) fell, while the Fed could be able to raise the rates earlier than expected next year

HSBC flash China manufacturing gauge fell more than the analysts had estimated in August, after lending had a slowdown and property slump added to the risks that the world’s second-largest economy may miss its growth target this year.

The preliminary PMI Index was at 50.3, trailing all 22 as estimated in a Bloomberg News survey of economists that had a median of 51.5. The measure dropped from July’s 51.7 and was at a three-month low. Here are the five takes in our views of this report:-

Both input and output prices decreased, which signal less demand from domestic and external when less targeted stimulus was announced this month.
Yuan rallied 0.44% against the USD this month, and this is not favoring the “export-oriented” HSBC manufacturing PMI survey sample.
We expect the People’s Bank of China (PBOC) to bring the Yuan lower in near term after the activities fell, because a rising yuan contradicts to its current loosing monetary policy.
Officials will continue to keep monetary policy accommodative and prudent, with the recent Chinese economic data such as lending, property prices together with today’s PMI data threat the 3Q growth.
Weak fundamentals in China from the recent economic releases and a more than 3% iron ore price fall could continue to drag the Aussie lower, it could fall 0.6% from against the dollar next week.
Stocks in China fell today, Shanghai Composite Index fell down 0.6% in the morning session, and the Australian dollar extended its decline after the report, which follows a slump in credit expansion and slowing growth in investment spending in July. While the PBOC has signalled that it will maintain a “prudent” policy stance, any further deterioration this quarter may force a looser setting. The official PMI reading for August will only be released next week, and it is already set to have a weaker reading.

Overnight, dollar was driven higher by the Fed minutes. The improving labour markets are bringing Fed officials closer to a time when they can get back to bread-and-butter central banking, where there’s a tighter connection between changes in economic data and movements in short-term interest rates.

Some participants were increasingly uncomfortable with the committee’s forward guidance on keeping its benchmark rate low for a considerable time, according to the minutes published. Many participants said that they might have to raise the borrowing costs sooner than they had anticipated.

Fed Chair Janet Yellen will provide her take on the latest data on labour markets in a keynote speech tomorrow at the Fed’s annual symposium in Jackson Hole, Wyoming. Now, U.S. central bankers see enough progress in the job market that they can finally let go of their zero-rate policy sometime next year.

The jobless rate is still a percentage point higher than Fed officials’ estimate of full employment. The Federal Open Market Committee (FOMC) statement last month emphasized that there is still a “gap” between current labour market conditions and “normal levels of labour utilization”. There are also signs of progress shown. Non-farm payrolls have increased at an average monthly rate of 230,000 this year, compared with 162,000 in the 2004-2007 pre-recession periods.

 

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Daily Market Report for 22 August 2014: A Guide to the Jackson Hole Day


Economic Insights

Janet Yellen is the key focus today, while it will be Mario Draghi tomorrow

The hawks were the first to be focused on at this moment and the moose wandering close to the Jackson Lake Lodge, where the symposium was held. It was those Federal Reserve (Fed) officials who were the most concerned by easy monetary policy and were making their views known as the annual event began with the opening dinner.

Kansas City Fed President Esther George is the conference host, and she is the most hawkish one. She said that the broad based employment gains suggest that the U.S. economy is strong enough to withstand any higher interest rates.

She recently said, “We have seen significant progress in the labor market over the last three years, and particularly this year. As we look at the healing we’ve seen in the economy and that progress, we’re in a good place to begin talking about normalization.”

Meanwhile, the Philadelphia Fed President Charles Plosser, who voted against the Fed’s policy statements last month, said that the centerpiece of policy and their relationship with the inflation isn’t strong. He said he’s concerned about the Fed not adjusting the policy appropriately.

Yellen has regularly cited weak labor markets as a scourge of the economy that she’s trying to boost with easy monetary policy. The conference’s theme is labor markets and Yellen’s speech will be the main event of the first full day of the conference.

European Central Bank (ECB) President Mario Draghi will deliver the keynote during luncheon speech tomorrow. Draghi said that this month’s policy makers have intensified the preparation to buy asset backed securities (ABS). In June, the bank had introduced targeted long-term refinancing operations (TLTRO) to improve bank lending in the non-financial private sector.

But one thing we need to notice is that the conference is lacking Wall Street participants for the first time ever.

It’s a clear “risk on” now with the rise in Standard & Poor’s 500 Index to a record rate. Meanwhile oil advanced with bonds, amid optimism that the Fed is committed to supporting a strengthening economy. Gold sank to a two-month low.

The S&P 500 added 0.3% overnight for a fourth day of gains, its longest streak since June. Data from housing to employment and manufacturing bolstered optimism that the growth in the world’s largest economy is accelerating a day after minutes from the Federal Reserve’s last meeting reinforced the central bank’s commitment to supporting the recovery. Chair Janet Yellen speaks on the labor market today as investors look for clues on the timing of higher interest rates.