CFDs

Archive for the ‘CFDS – Forex Trading’


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.

 
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.

Bank of England Minutes Surprise as MPC Fails to Back Carney’s Dim View of Inflation 0

Posted on November 19, 2014 by Frankie Lawson

The trading day is being dominated by central banks on Wednesday as the Bank of Japan stands pat following last month’s surprise stimulus and the Bank of England minutes show members to be more hawkish than expected.

Still to come we have the FOMC minutes from the previous meeting which as always has the potential to really shake things up in the markets.

The BoJ’s decision to leave monetary policy unchanged came as no surprise to the markets, despite seeing significant weakness in the data over the last week.

Policy makers clearly anticipated these figures at the meeting a month ago when they increased the monetary base to ¥80 trillion and therefore there was no need to act again today.

Whether they’ve done enough remains to be seen but I think it would be ridiculous to overreact at this stage.

It can’t come as a massive surprise that the economy fell into recession when the same thing happened last time there was a sales tax hike and the same will probably happen again in 2017.

MPC Doesn’t Support Carney’s Falling Inflation Fears

The minutes from the BoE meeting a couple of weeks ago came as more of a surprise as they didn’t appear to support the views expressed by Governor Mark Carney at the quarterly inflation report press conference.

Carney had suggested that inflation will fall below 1% for some time and only return to 2% in three years, which appears to go against the comments in the minutes.

The minutes show some of the seven that voted against a rate hike highlighting the risk of inflation overshooting the 2% target and a tight labour market leading to wage growth soon which could boost CPI pressure.

Once again we’re getting mixed messages from the BoE but I think right now, the markets are more inclined to agree with the views of Carney last week and many are moving back their rate hike expectations to the end of next year at the earliest.

Will the FOMC Shows Signs of Disinflation Concern?

Next up we have the minutes from the FOMC meeting a few weeks ago.

The statement that was released alongside the decision a few weeks ago was erring on the hawkish side, with the FOMC appearing more optimistic on the economy and the labour market.

They also gave the impression that they don’t envisage low inflation being a problem, as is being experienced in many other parts of the world, which I would imagine makes a rate hike more probable.

The minutes today should elaborate more on this but I imagine investors will go into this expecting more hawkish comments from the Fed, which when Janet Yellen is at the helm tends to be a little dangerous.

US Housing Figures

On the data side, we’ll get some housing data early on in the US session, with building permits and housing starts for October and MBA mortgage applications for the week to November 14 being released.

Both building permits and housing starts have been pretty steady over the last year or so, but remain well below the levels seen before the financial crisis.

As it stands, we’re seeing no signs of this changing and I think the markets will be content with the status quo for now, which is what is expected.

We’ll also get the latest crude oil stocks data from EIA today, although I’m not convinced we’ll get the usual reaction to it.

Oil prices have been declining for a long time now and remain very heavy despite consolidating a little as of late.

I think people are more focused on OPEC’s reaction to the decline next week though and whether production will be cut in an attempt to support prices.

The S&P is expected to open 3 points lower, the Dow 20 points lower and the NASDAQ 3 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.

UK Data Reaffirms Carney’s Suspicion of Low Inflation Whilst Abe Confirms Election 0

Posted on November 18, 2014 by Frankie Lawson

The latest ZEW economic surveys showed analysts and institutional investors are more optimistic about conditions in the Eurozone’s largest economy than they’ve been since July and far more so than the markets had expected.

Of course these surveys can change quite dramatically from month to month so I don’t think anyone is going to get too carried away with it, but it’s certainly encouraging.

There was also a marginal improvement in the current situation measurement, despite expectations for another decline, so there are definitely positives to take away from this.

That said, it did come with a warning on the fragility of the economic environment, with geopolitical tensions continuing to weigh on the economy.

Low Inflation in the UK

We’ve seen further evidence of the low inflation environment that Bank of England Governor Mark Carney addressed last week, from the October CPI reading which rose slightly to 1.3%.

Core inflation remained at 1.5%, below expectations of a small rise to 1.6%.

Given that Carney last week claimed that he will soon have to write a letter to Chancellor George Osborne, as inflation is expected to fall below 1% and only return to 2% at the end of the forecasting period of three years, this can’t come as a surprise to anyone.

With Carney claiming that inflation will return to 2% in three years, it’s very unlikely that any further loosening of monetary policy is planned.

Japanese PM Confirms the Rumours

Japanese Prime Minister Shinzo Abe called a surprise press conference this morning in which he confirmed the rumours that have circulated in the markets over the last week.

In response to the poor showing in the third quarter, which drove Japan into technical recession, Abe pushed back the next sales tax hike, from 8% to 10%, by 18 months to April 2017.

Abe claimed that the delay was necessary as a second hike could threaten the exit from deflation.

He also stated that it would not be delayed a second time which I’m not sure anyone is going to buy as doing this at the wrong time will do more harm than good, hence today’s announcement.

Abe also confirmed that the lower house will be dissolved on 21 November, with elections taking place in December.

There wasn’t a huge reaction to this though because as already stated, it’s been rumoured for a week and therefore as far as the CFD markets are concerned, it’s old news.

US Inflation Data

Next up we’ll get inflation data from the US, in the form of the October PPI readings.

The amount paid by producers gives a strong indication of future consumer price inflation and these can therefore be viewed as a good leading indicator.

Both the PPI and core PPI readings are seen pulling back slightly in October, potentially highlighting future disinflation in the US at a time when the Fed is looking to raise rates and the rest of the world is experiencing difficulties with inflation.

We’ll also hear from FOMC voting member Narayana Kocherlakota, who is due to speak at the St Paul Rotary in Minnesota.

Given that these speeches can invite questions, we may get some hints over future Fed policy which have the potential to move the markets.

The S&P 500 is expected to open 1 point lower at 2,040, the Dow unchanged at 17,647 and the NASDAQ 3 points lower at 4,210.

 
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.

Stocks See Mixed Trading as Eurozone Data Surprises to the Upside but Remains Woeful 0

Posted on November 14, 2014 by Frankie Lawson

It’s been a mixed start to the European session on Friday, with growth and inflation figures for the Eurozone confirming the dire state of affairs in the region, although there were a few upside surprises that have provided a small boost to CFD investors.

All things considered, the data is pretty dire and the economic outlook for the Eurozone is no better.

On a positive note, Germany avoided falling into recession after achieving measly growth of 0.1% in the third quarter, while the French economy grew by 0.3%, higher than the 0.2% we were expecting.

We really are dealing with tiny margins here so I can’t help but think that we’re clutching at straws in trying to look for positives in this data.

The reality is that the growth rates we’re seeing in the Eurozone right now are woeful and none of the data we’re seeing suggests there’s going to be any improvement.

On top of that, the low level of inflation in the region is not going to support growth going forward and despite the ECBs best efforts, the latest CPI reading remained at 0.4% which is dangerously close to deflation territory.

Can the US Consumer Save the Eurozone?

The ECB has a massive job on its hands and appears to still be in denial.

At this stage, I’m not sure there’s much the ECB can do unless governments use fiscal policy to stimulate growth alongside it, rather than view ultra-loose monetary policy as a replacement for pro-growth policies.

This is the point Jack Lew was trying to make this week when he criticised Eurozone leaders for relying on the US consumer to drive global growth.

Fortunately for the Eurozone, consumer sentiment in the US has been on the rise recently and is expected to hit the highest levels since the middle of 2007, when the latest preliminary UoM consumer sentiment reading is released today.

The number is expected to jump to 87.5 in November, the highest level since July 2007, before the financial crisis began.

Retail sales for October should support this picture of growing consumer confidence, with sales seen increasing by 0.2%, the eighth month out of nine that we’ve had a positive monthly reading.

Core retail sales are also expected to show growth of 0.2%, which is a positive sign as we head into the holiday season, a time of year when the consumer is extremely important to the economy.

The S&P is expected to open unchanged at 2,039, the Dow unchanged at 17,652 and the NASDAQ unchanged at 4,213.

 
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.

Dovish Carney Remains Cautious as UK Wage Growth Exceeds Inflation for the First Time in 5 Years 0

Posted on November 12, 2014 by Frankie Lawson

There was some good news for the UK this morning, as data showed wage growth exceeding inflation for the first time in five years.

For so long, the economic recovery in the UK seems to have eluded people’s pay packets, leaving peoples worse off in real terms.

With unemployment falling faster than many expected and now being at the lowest level since October 2008, it seems employers are now being forced to pay people more as opportunities increase and the number of people qualified to fill them falls.

This was always going to be the process, it’s just a relief that we’re finally seeing real wage growth.

In a consumer driven economy, this is essential if the strong economic recovery was going to be sustainable.

Unemployment may have not fallen to 5.9% as expected, instead remaining at 6%, and the claimant count change may have fallen a little less than was forecast, but people are clearly more concerned with wage growth right now which is why the response in the markets was positive.

Inflation to Fall Below Target?

What’s more, during the BoE inflation report press conference, Governor Mark Carney claimed that inflation will remain subdued for some time yet and even fall below 1% for a while.

This would mean the novelty of him having to write a letter to Chancellor George Osborne to explain why it is below target.

Despite this, he did claim that it is expected to return to 2% by the end of the forecast period which would suggest that, while the BoE is likely to leave rates low for longer, they’re unlikely to ease more to fight the low inflation.

This is still quite dovish which is why we’ve seen so much weakness in the pound since the start of the press conference.

He further claimed that rate rises will be gradual and remain below the long term average for some time, although he did caveat this by claiming that this was not a promise, just a forecast.

BoE Careful Not to Upset Markets

Clearly Carney has become accustomed to the irrational moves that we can see in the markets when investors incorrectly perceive an opinion to be a commitment, which is something we’ve seen over and over again in recent years.

This highlights the very cautious exit strategy being taken from the BoE as it enters uncharted territory in its attempts to return to normality following years of ultra-accommodative monetary policy, the likes of which have never been tried before.

A few other important points from the press conference included the revision to growth forecasts for next year to 2.9%, from 3.1% in August, which is clearly being driven largely by the stagnation in the UK’s largest trading partner, the Eurozone.

Carney also confirmed that productivity growth has remained subdued, despite the central banks best efforts and he didn’t look optimistic on this going forward.

This is even more reason for the MPC to keep rates low until the end of next year, at least.

Speech from Fed’s Kocherlakota

The rest of the day is looking a little quieter with no major economic releases coming from the US, although we will hear from Narayana Kocherlakota, a dovish voting member of the FOMC.

Last time out, Kocherlakota claimed that there’s no evidence of inflation returning to 2% and I very much doubt today’s comments will differ too much from this.

Especially when we’re seeing falling inflation in many of the major economies across the globe.

The S&P is expected to open 8 points lower, the Dow 57 points lower and the Nasdaq 16 points lower.

 
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Article by Craig Erlam, Market Analyst, Alpari.

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