CFDs

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European Court of Justice Ruling Deals Blow to Those Opposed to ECB Quantitative Easing 0

Posted on January 14, 2015 by Frankie Lawson

This morning’s European Court of Justice ruling may not have been legally binding but it could have given those that believe outright monetary transactions (OMTs) and quantitative easing (QE) do not lie within the ECBs remit a strong case.

Unfortunately for them, the ECJ appears to have ruled in favour of Mario Draghi and the members of the ECB that support both programs.

The ECJ Advocate General this morning confirmed that the OMT may be legal, although this was dependent on certain conditions being met.

In principal, it was ruled that OMTs are in line with the EU treaty as long as there is no direct involvement in financial assistance programs for the member state.

In other words, as long as the ECB is purchasing bonds on the secondary market, bond purchases are neither breaking the rules of the treaty or outside of its mandate.

It did state though that the ECB must outline the reasons for adopting the unconventional measures, something I’m sure Draghi will be more than happy to do.

The ruling has dealt a massive blow to those that oppose both policies, none more so than Jens Weidmann who, despite his softening stance on QE, has been openly against such programs on the belief that they constitute government funding.

Ruling Has Little Immediate Impact on OMT

In reality, this ruling makes little difference to the OMT program, for now at least.

No country has utilised the OMT program and all are in a much better position now than when it was announced and therefore no one is likely to.

The most important thing the OMT program did was provide an important backstop for the Eurozone which in turn brought yields on debt significantly lower.

It effectively did the job it was designed to do and I don’t think the ECB ever expected it to ever be utilised.

The reason why this ruling was so important was because of the implications it could have had for QE, which the ECB is expected to announce next week.

Draghi Now Free to Consider QE Ahead of Greek Election

Had the ECJ ruled against OMTs, Draghi would have come up against significant opposition as the two programs are very similar.

Both involve purchasing government bonds on the secondary market, which some have argued constitutes government funding.

With this hurdle now out of the way, Draghi is free to announce a bond buying program without fearing a backlash from those that previously called it illegal and outside of his remit.

Stock markets rallied following the ruling, as investors cheered the removal of another QE hurdle.

The only one that remains now is the Greek election a few days later, which is likely to influence next week’s announcement.

Whether it will delay it for another month is tough to say but the markets would suggest not. Either way, QE now looks inevitable, if not at this meeting then in March.

The only question now is how it will be implemented, with the ECB having a far tougher job that its US, UK and Japanese counterparts.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Oil Price Stabilisation Allows the Market to Focus on the Upcoming Nonfarm Payrolls Data 0

Posted on January 09, 2015 by Frankie Lawson

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.

US Employment Figures

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 US shares 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.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Eurozone Slumps into Deflation but Can the ECB Justify Delaying QE Until After the Greek Election? 0

Posted on January 07, 2015 by Frankie Lawson

Oil is once again what everyone is talking about this morning after Brent crude pierced the $50 a barrel level for the first time since May 2009.

Nevertheless, there are plenty of other things to focus on today as the FOMC releases the minutes from its December meeting and we get the latest update on job creation from ADP.

The $50 level in Brent crude was widely seen as the next big psychological level at which traders may be tempted to lock in some profits or even be tempted to buy into the decline.

However, this was far from guaranteed as the same level in WTI proved to be nothing more than another hurdle that traders were more than happy to clear.

We do appear to have seen more of a reaction to the level in Brent, with it having bounced as high as $51.63 since, although in the grand scheme of things this isn’t much better than the rally to $50.88 in WTI shortly after reaching the same level.

As it stands, this looks nothing more than a dead cat bounce and I expect traders to remain very reluctant to be overly bullish at these levels as the fundamental picture has not changed.

I’ll be very surprised if the $50 level holds until the end of the day, let alone in the longer term.

The fact of the matter is that there is still an oil supply glut and demand isn’t there.

Unless one of these factors change, oil prices are going to remain very heavy.

The decline may slow and probably will but I would not bet against both WTI and Brent breaking through $40 in the coming weeks.

It’s not just oil producing countries and energy firms that are feeling the pressure of falling oil prices, central banks in oil importing nations are also being put into an uncomfortable position.

Whether it is the Fed and BoE having to question the timing of the first hike, or the ECB potentially being forced into bond buying despite an important election taking place in Greece only a few days later.

Eurozone Hits Deflation

This morning it was confirmed that the Eurozone has finally fallen into deflation territory for the first time since 2009, driven by a 6.3% decline in energy prices which won’t come as much of a surprise to anyone given the movements in oil prices.

All other prices remained quite stable, while services actually rose by 1.2% which explains why the core reading rose to 0.8% from 0.7% the month before.

The rise in the core reading may potentially give the ECB the opportunity to delay its next stimulus package until after the Greek election when it will have a much better idea of what it’s dealing with.

I don’t think the rise in the core reading has done anything to change the consensus opinion in the markets though, with equity markets appearing to react positively to the drop into negative territory of the headline figure, suggesting they’re still convinced that QE is still on the cards this month and potentially even more so.

The decline in oil prices doesn’t appear to be changing the Fed’s view on upcoming interest rate hikes from current record lows, with everything continuing to point to the middle of the year for the first hike.

That said, with oil continuing to plummet, this may change and if we get any indication that this is the case in today’s minutes, it would more than likely have a major impact on the markets.

Fed Minutes to Hint at Direction of Rates

While the inflation decline in the US hasn’t been close to as bad in other countries, it is certainly heading lower and already below the Fed’s 2% target.

If this is to continue, the Fed will be in the very difficult position of seeing a strong economic recovery but potentially being forced to leave rates at the current lows so as to not exacerbate the inflation problem.

The minutes may provide further clarification on whether this is the case or if they consider the movement in oil prices to be temporary and not threatening thereby continuing on the course of rate hikes as planned.

Today also sees the release of the non-farm employment change figure which is seen as an estimate of Friday’s non-farm payrolls figure based on the numbers compiled by ADP, which provides payroll services to a large number of corporations.

The release is generally not seen as a very accurate estimate of the official NFP figure but it can give an indication of whether we’re going to see a big swing away from expectations, which is more what this is used for.

The S&P is expected to open 12 points higher, the Dow Jones 94 points higher and the NASDAQ 21 points higher.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Markets Dip as Traders Consider Prospect of Greek Exit from Euro and UK Exit from EU 0

Posted on January 05, 2015 by Frankie Lawson

A quiet start to the week for the US despite the return of many traders following the New Year break as a lack of economic data or events leaves investors looking for direction elsewhere.

For now, it’s Europe that’s guiding investors, with snap Greek elections later this month potentially setting a precedent for elections in other austerity stricken countries this year, with the anti-austerity Syriza party currently leading in the polls.

A Greek Exit Would be Tough but Not Catastrophic

While a Greek exit won’t be as catastrophic as it would have been a few years ago, it’s certainly undesirable.

Should Syriza rise to power, the Eurozone faces the tough task of doing what it can to keep Greece in the union while not incentivising other countries to vote in parties of a similar mindset.

For this reason, it’s going to be a massive year for the Eurozone.

With this in mind, the ECB faces a tough choice when it meets in a couple of weeks in the first of its now 6-weekly meetings.

The market has quite heavily priced in the adoption of quantitative easing from the ECB, which it has been rumoured to be preparing for this month’s meeting.

However, with Syriza leading the polls, there may be issues around Greece’s membership of the currency block and therefore the ECBs willingness to buy its bonds.

As a result, the central bank may be forced to rethink its plans and either exclude Greece or opt for some other form of stimulus, which I imagine the markets wouldn’t take to as well.

Sterling Struggles as UK Data Cools Ahead of Election

The UK is also becoming increasingly viewed by investors as one to steer clear of.

The UK faces a general election due later this year which is simply too close to call, a vote on EU membership in the pipeline if the Conservatives remain in power and the economy showing signs of broad based cooling following a strong 18-month run.

The only thing that’s supported sterling recently has been the fact that the Bank of England is likely to be one of the first major central banks to raise interest rates, but even this now looks unlikely until next year.

He construction PMI this morning providing further evidence of the cooling in the economy, falling to 57.6 from 59.4, much larger than the expected drop to 59.

This was the third consecutive month that we’ve seen a decline in the number although we should take a couple of things into consideration with this.

Firstly, a decline in construction activity in the winter months is not that uncommon.

Secondly, 57.6 is still a very good reading and points to continued strong growth in the sector which should not be sniffed at.

The US session is looking a little quieter today but things will pick up as the week goes on.

Between PMI readings tomorrow, FOMC minutes on Wednesday, jobless claims on Thursday and the jobs report on Friday, it’s not going to be a straightforward first week for investors although it should set things up nicely for the year.

The S&P is expected to open 9 points lower, the Dow 68 points lower and the NASDAQ 16 points lower.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Forex Markets See Volatility as Central Banks See Contrasting Priorities and Policies 0

Posted on December 17, 2014 by Frankie Lawson

The Bank of England minutes from the meeting a couple of weeks ago showed two policy makers, Martin Weale and Ian McCafferty, once again voting in favour of a 25 basis point rate hike.

This came despite the fact that inflation fell to 1% last month, as measured by the Consumer Price Index.

This is well below the BoE’s 2% target and while many have pointed to falling oil prices as being behind the move, core inflation which strips this out fell to 1.2%, which suggests there’s more to it.

With this in mind, I find it hard to understand how Weale and McCafftery can still justify wanting to raise rates which would typically weigh even heavier on the inflation outlook.

That said, they are widely viewed as the most hawkish members of the Monetary Policy Committee, so maybe it shouldn’t be too surprising.

On that same point, their opinions are unlikely to represent those of the rest of the committee and I don’t see the voting changing much towards a hike for most of the year at least.

Wage Growth Still Important to UK Rate Setters

It could even be 2016 before it happens given the outlook for inflation and wage growth.

Wage growth is improving in the UK and once again in the three months to October was better than expected, rising by 1.4% including bonuses and 1.6% excluding bonuses.

While this should be celebrated as it shows progress is being made and more importantly, it’s above inflation meaning real wages are finally rising on a consistent basis, it remains below the central bank’s 2% target, so we can’t get carried away.

The fact that real wages are rising is purely down to luck and if the BoE can achieve its target in the near future, real wage growth will once again be non-existent.

Big improvements still need to be made and for that reason, it’s important that the BoE remains accommodative.

ECB Trying to Fight Off Deflation

While the BoE may have become much less hawkish of late, its job over the next 12 months could not be much different than that of the ECB which is looking to aggressively expand its balance sheet in an effort to stop the Eurozone falling into a deflationary spiral.

Efforts made by the ECB so far have not been good enough, with its balance sheet actually shrinking as a result of LTRO repayments.

The first two take-ups of TLTRO’s have quite frankly been poor and nothing else appears to have done much at all, with inflation confirmed this morning as being at 0.3% in November.

There was speculation after the last meeting that the ECB was drawing up plans for a broad based quantitative easing program which may be the best chance it has of preventing a deflation crisis.

It may create political problems, but the central bank is clearly getting desperate and running out of ideas.

Russian Foreign Ministry Tries to Help the Ruble

Further efforts are being made by the Russian Foreign Ministry to stabilise its currency after two days of absolute mayhem for the ruble on the forex markets.

Prices rose to an all-time high of 80 rubles to the dollar yesterday before retreating, having fallen to 58 earlier in the same day in some of the most volatile trading conditions most people will ever see.

The ministry only reportedly has $7 billion of reserves, which makes you wonder how much its efforts will actually stabilise it, given that the Central Bank of Russia has apparently conducted $80 billion of interventions this year to little avail.

FOMC Statement Set to be More Hawkish?

As if everything that’s gone on this week wasn’t enough for the markets to get to grips with, this evening we’ll get the final monetary policy decision of the year from the Federal Reserve.

The decision itself is unlikely to come as a shock, with rates remaining unchanged, it’s the wording in the statement that people are most concerned with.

For a long time now, the Fed has committed itself to keeping rates at record lows for a ‘considerable’ amount of time beyond the end of QE.

The FOMC is believed to be considering removing it this month in a move that would clearly signal an imminent rate hike to the markets.

I expect plenty of volatility around this event whatever they do.

I’m sure if this is removed, Chair Janet Yellen will do her very best to assure the markets that it won’t come until the middle of next year, the only question is whether the markets will buy it.

The S&P is expected to open 7 points higher, the Dow 62 points higher and the NASDAQ 14 points higher.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Russian Ruble Tumbles Despite Surprise Hike to 17% Interest Rates 0

Posted on December 16, 2014 by Frankie Lawson

The Russian ruble is in freefall this morning despite overnight efforts from the Central Bank of Russia to at least slow the decline.

The CBR threw everything, including the kitchen sink, at the currency problem 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.

However, unfortunately for the CBR, this 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 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 руб 58.33, the dollar has sky rocketed more than 26% before settling just above руб 73.

At the time of writing, it doesn’t look like CFD 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.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Europe Starts Off Well as Traders Await the NFP but Wage Growth is the Most Important 0

Posted on December 05, 2014 by Frankie Lawson

The European session got off to a bright start on Friday as investors responded to reports that emerged after the close on Thursday that claimed the ECB is preparing a broad based quantitative easing package for January.

These reports have yet to be confirmed and are unlikely to be given that ECB President Mario Draghi yesterday refused to be drawn into questions on when we could see QE, stating that everything depended on the data and appropriate measures would be taken.

Needless to say, that doesn’t really tell us much and the reality is that the CFD markets are just reacting on false reports.

US Employment Data Eclipses ECB Rumours

With the US jobs report to come today, the ECB is likely to slip to the back of people’s minds as attention turns to the US economy and when we will see the first rate hike since June 2006.

The Federal Reserve is the clear front runner to raise interest rates first of the major central banks, with the UK the only other one also close to doing so, but that looks to have been put back to the end of the year.

The jobs report is widely believed to be the most important release on the economic calendar each month, simply because a strong US economy, the world’s largest, is beneficial for everyone.

Ordinarily, the aspects of the jobs report that people may most attention to are the unemployment rate and the non-farm payrolls, number of jobs created.

However, that is not necessarily the case anymore as neither of these is what’s responsible for the Fed holding back on the first rate hike.

Unemployment is expected to remain at 5.8%, which is near the level that the Fed deems full employment, while 230,000 jobs are expected to have been created in October.

Both of these are strong figures and will help buoy the markets but neither of these are going to encourage the Fed to raise rates.

Wage Growth Remains the Fed’s Chief Concern

The Fed has made it perfectly clear that what concerns them most is wage growth, productivity and slack in the economy.

Inflation is also a global concern, but wage growth should help the Fed reach its 2% target.

With that in mind, the average hourly earnings number is arguably more important as this could be seen to holding back the economy at the moment.

Rising wages could be the final piece of the puzzle as it would suggest that slack is declining and productivity is improving.

A few months of above 2% wage growth could convince the Fed that the economy is on a strong sustainable path, paving the way for the first rate hike in the middle of next year.

The other number worth watching is the participation rate, which is expected to remain around 62.8%.

This remains a problem as it highlights a lack of faith in the outlook, although a significant proportion of the decline in participation since 2008 can be attributed to an aging population so it’s not necessarily as bad as the headline figure suggests.

Any improvement here though will be more than welcome.

The S&P is expected to open 3 points higher, the Dow 28 points higher and the NASDAQ 9 points higher.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

ECB in Focus as Traders Look for QE Hints but Will they be Disappointed? 0

Posted on December 04, 2014 by Frankie Lawson

The European Central Bank meets today and while the consensus view appears to be that no further stimulus will be announced, there is a growing expectation in the markets that the central bank will announce its first QE package early next year.

Therefore, investors will be monitoring comments closely for hints on when that could happen.

I remain in the ever shrinking camp that does not believe we will ever see quantitative easing from the ECB and, if I’m wrong, it will be an absolute last resort once all other options are exhausted, which is not even close to being the case just yet.

There is just too much opposition in Germany to QE and policy makers are too split on the political debate on whether it constitutes government funding.

In my view, we would have to see negative inflation readings and dangerously low inflation in Germany before it becomes a realistic possibility.

Complicated Eurozone Bond Structure May Limit Chances of Sovereign QE

That doesn’t even take into consideration the complications that the ECB would face in purchasing government debt because unlike the US, UK and Japan, the Eurozone doesn’t have a common bond.

Instead it has a basket of bonds, each with a different yield and rating, not all of which are investment grade.

Add this to the political debate and I just don’t see how the ECB can agree on QE, especially when there are other options out there like corporate bond purchases, something which is rumoured to have been discussed.

We should find out more about all of this during the press conference today which is usually when we get most of the market volatility.

The ECB may not be able to agree on QE, but Mario Draghi is a tease and the CFD markets are a sucker for his unsubtle hints at potential bond buying.

We can’t write off the potential for some form of stimulus today, given Draghi’s comments a few weeks ago when he claimed the ECB needs to do more.

We also get the latest growth and inflation forecasts which may provide the incentive for the ECB to ease further, although I don’t expect anything too large.

US Jobless Claims Set to Fall Back Below 300,000

Over in the UK we also have the latest monetary policy decision from the Bank of England, although this is almost guaranteed to be a much less significant event.

The MPC is extremely likely to leave interest rates and asset purchases unchanged at 0.5% and £375 billion, respectively.

Given that there won’t be a statement released alongside this or a press conference afterwards, there really is nothing newsworthy to take away from it.

This leaves us with the US economic data that is scheduled for release today.

Last week, jobless claims rose to 313,000 for the first time since the end of August ending a 10 week streak of sub-300,000 readings.

We’re expecting it to move back below this level again today, with the number seen dropping to 290,000.

Continuing claims are expected to rise slightly from the multi-year lows they fell to last week.

The S&P is expected to open 1 point higher, the Dow 18 points higher and the NASDAQ 3 points higher.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Index Markets Dip as Eurozone and Chinese PMI Readings Disappoint 0

Posted on December 01, 2014 by Frankie Lawson

The week has got off to a slightly negative start on Monday as some less than pleasing PMI readings from the Eurozone and China adds to global growth concerns in 2015.

The latest official manufacturing PMI reading from China narrowly avoided falling into contraction territory for the first time since September 2012, falling to 50.3 from 50.8 and below expectations of 50.6.

It was an even closer call for the HSBC reading, which fell to 50 from 50.4, right on the boundary that separates growth from contraction.

The decline in the readings may have been felt more had it not been for the interest rate cut from the People’s Bank of China a couple of weeks ago which should hopefully reverse some of the decline in the months ahead.

The PBOC is also expected to announce further easing measures early next year, which may be providing further support to markets that remain addicted to central bank stimulus.

ECB Rate Meeting in Focus

It’s a similar scenario in the Eurozone where confidence is continuing to plummet, even in the regions strongest economy, Germany, where the manufacturing PMI reading for November fell back into contraction territory only two months after clawing its way back above 50.

As in China, the focus at the moment is on the central bank and what it can do to support growth and slow the decline in inflation, with the Eurozone lying dangerously close to deflation territory.

The ECB has already announced a large batch of measures in an attempt to stop the decline but they don’t appear to be working.

Following Draghi’s comments a couple of weeks ago when he claimed the ECB must do more, the latest policy decision on Thursday should be extremely interesting, with some suggesting that the ECB may be ready to unleash the QE bazooka.

The latest ECB decision is just one of many major events to come this week, with the Bank of England also announcing its latest policy decision on Thursday, the US jobs report being released on Friday and a large number of other significant economic releases scheduled throughout the week.

Add to this the Autumn forecast statement in the UK and we have a very interesting week in store.

Switzerland Says No to More Gold

One major event that is already behind us is the Swiss vote on gold holdings over the weekend.

Had they voted in favour of increasing gold holdings to 20% from the current 7.5% level, it could have had a significant impact on a number of markets, particularly gold and the Swiss Franc.

The EURCHF pair will have been one of the more interesting due to the Swiss National Bank’s pledge to implement a floor on the pair at SFr 1.20, a level it is currently trading very close to.

The SNB may have found it very hard to protect that level had the initiative been passed.

However, there was an overwhelming majority against increasing gold holdings in the end, which prompted initial buying in the EURCHF pair and selling in gold but both have reversed much of the moves already.

US Manufacturing Figures

In the US today, the November manufacturing PMI readings from Markit and ISM are scheduled for release.

It’s worth noting that the Markit PMI is a revised reading while the ISM PMI is an initial reading so it tends to have a greater market impact.

The official reading is expected to rise slightly to 55, while the ISM number is expected to fall to 58, which is still comfortably in growth territory and very encouraging as we head into 2015.

The S&P is expected to open 5 points higher, the Dow 27 points higher and the NASDAQ 3 points higher.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

Article by Craig Erlam, Market Analyst, Alpari.

This content should not be construed in any circumstances as a recommendation or solicitation of any offer to buy or recommendation or offer to sell any security or other financial instrument.

Australian Dollar Receives a Shot in the Arm from Chinese Interest Rate Cut 0

Posted on November 21, 2014 by Frankie Lawson

It was initially looking like a quiet day for the financial markets due to the lack of scheduled economic events.

However, the session has become a lot more interesting thanks to some dovish sounding comments from European Central Bank President Mario Draghi and surprise stimulus from the People’s Bank of China.

European markets got off to a strong start on Friday as ECB President Mario Draghi delivered an unusually strong dovish message on monetary policy.

Every time Draghi speaks he seems to say the same thing, the central bank stands ready to act, it will consider all unconventional measures, quantitative easing is a possibility.

While this tends to get the markets excited, his comments last night were much more dovish.

Draghi’s comments about the increasingly challenging fight against deflation strongly suggest that the ECB is going to have to do more.

While speculation is rife in the markets that QE will happen at some point, I remain unconvinced, although the ECB is surely running out of other options.

The other attempts this year don’t seem to have done much, with inflation remaining well below the 2% target and dangerously close to deflation levels.

I think we could see another round of stimulus announced in the next couple of months in an attempt to grow the balance sheet to €2 trillion but I think they will explore other unconventional tools.

PBOC Unexpectedly Cut Rates

The markets were given another helping hand mid-way through the morning of the European session by a surprising announcement from the People’s Bank of China that it is cutting interest rates.

There has been a lot of talk recently about the potential for the PBOC to do more targeted stimulus in order to fight back against the slowing economy, and there were rumours over night that it may be about to inject a large sum into the financial system, but no one expected a broad based interest rate cut.

The FTSE got a big boost from the announcement due to its exposure to China, while the Australian dollar also spiked along with commodities.

Falling Chinese demand has been partly behind the decline in commodity prices and the Australian dollar, as the country exports a significant amount of raw materials to China, so it’s no surprise to see these benefiting from this surprise rate cut.

Barring any further surprise announcements, the rest of the day is looking a little quiet with nothing major on off in terms of economic data.

I expect to see another response to the Chinese rate cut around the US open as investors in the US respond to the news but aside from that, it may be a calm start to the weekend.

The S&P is expected to open 13 points higher, the Dow 114 points higher and the NASDAQ 30 points higher.

 
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Article by Craig Erlam, Market Analyst, Alpari.

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