Strong UK Retail Sales is Offset by a Weak Agent Report

European stock markets are narrowly mixed in quiet trade, following on from subdued trading in Asia overnight, where the Hang Seng closed up a modest 0.27% and the Nikkei managed a 0.05% gain, while the ASX 200 was down -0.08% at the close. Trading volumes were lower than usual and while investors seem to have shrugged off Trump’s attack on North Korea in his first address to the United Nations, they are clearly holding back ahead of the Fed announcement today. The DAX is slightly up the FTSE 100 is slightly down with the latter’s underperformance underpinned by a stronger pound after stronger than expected retail sales numbers. UI.S. stock futures are narrowly mixed, oil prices are higher on the day.

UK August retail sales beat expectations, rising 1.0% month over month and by 2.8% on the year-on-year comparison. The respective median forecasts had been for much more modest growth rates of 0.2% month over month and 1.3% year over year. July data were also revised higher, to 0.7% month over month, from 0.5%, and to 1.7% year over year, from 1.5% year over year. Good news as the consumer sector is the dominant driver in the UK economy, and with BoE having said that it is keeping a close eye on how households respond to developments related to the process of withdrawing from the EU.

The BoE Agent Report Shows Slowing Growth

Despite a robust retail sales report, the BoE agents report is a survey of anecdotal activity across the economy, comparing activity and prices from a year earlier. Today’s release covers the period from May to August of this year and found that demand growth in several consumer-facing sectors had slowed and that investment intentions had weakened with the dominant services sector, though were more position for goods exporters. It also noted that while growth in labor costs had been subdued, recruitment difficulties remained elevated, with conditions becoming “very tight” for some skills, which is something that the BoE’s hawkish-leaning statement of last week highlighted.

European institutes see steady growth ahead. The joint forecast by Ifo, which is in Germany, Istat, in Italy and the KOF, in Switzerland for the Eurozone going ahead project growth of 0.6% quarter over quarter in Q3 and Q4 this year, followed by a marginal slowdown in the quarterly growth rate to 0.5% in the first quarter of 2018. Annual growth rates are seen steady at 2.4% throughout the forecast period. Inflation is expected to average 1.5% but fall back to 1.1% in Q1 next year, which will give the doves at the ECB something to argue with.

No Action From RBA & the US Fed Until 2018

  • It’s going to be a busy week with key data releases coming from Australia, the U.S., and Canada. Joining me today is James Hyerczyk from FXEmpire to provide his analysis.

Firstly James let’s start with Australia where the RBA meeting minutes will be released. Now if policymakers shift their tone into a more positive outlook, that’s going to provide support for the Aussie Dollar. However, a negative outlook would be bad news for the Australian Dollar.

So James, what outlook are you expecting?

James Hyerczyk:  I believe the RBA is going to remain cautious in this week’s minutes. I believe they still want to see a strong GDP and an improving labor market before they make their next interest rate hike and I don’t think it’s going to come until early 2018.

Quarterly GDP has to improve so we’re not going to get any reading on that until at least January. So I think the rest of this year they’re going to leave rate alone and then revisit the idea sometime in March.

Right now the numbers just don’t back a rate hike. And I don’t think they are going to succumb to the pressure of what the market is saying in terms of the value of the Australian Dollar or any pressure from the European Central Bank or the Fed as they continue to move towards tightening their monetary policy.

I think the RBA is going to stand firm in what they believe in and leave rates unchanged until at least March 2018.

  • And the U.S. Fed will also be announcing their interest rate decision. The market currently expects no change. Do you agree with this?

James Hyerczyk:  As far as the Fed’s concerned I don’t expect them to raise interest rates. That’s been telegraphed for a long time. I think the odds of a rate hike in September are about 1.4% according to the Fed Funds indicator.

Also, I don’t think they are going to raise in December although investors are sitting on the fence on that one at about 50%.

I do think the next rate hike is probably going to come in June 2018. I think the Fed is going to try to calm or markets or tighten a little bit using the trimming process of its balance sheet.

That in effect is a tightening process although it’s not as dramatic as a rate hike, it should help to tighten the policy and pull-out some of that loose, cheap money that has been floating around.

But this time, the numbers just don’t support a rate hike in September or December, or even March next year.

Now if we do get tax reform passed here in the U.S. then I think that is going to help improve the economy and it may move, or speed up the process of raising rates. And I think that maybe that is what the Fed wants to see.

Yellen has been talking about a combination of monetary policy and fiscal policy working together to drive the economy and help with the Fed’s decisions. And so far, it’s been all about monetary policy.

So once we get fiscal policy straightened out here in the United States that’ll probably help improve the inflation rate and move inflation closer to the Fed’s 2.0 percent target.

  • And Canada’s inflation is expected to come in at 1.5 percent, do you think the data will meet this and how do you expect the Loonie to react?

James Hyerczyk:  If inflation comes in as expected then I expect the market to remain neutral or we could see some profit-taking in the USD/CAD because it has dropped so much. And technically, it’s a little bit oversold.

So if we do see a stronger-than-expected inflation rate, then we may see signs of another rate hike coming. And that will put the Dollar/Canadian Dollar lower over the near-term.

But if it comes in steady as expected at 1.5 percent then we’re probably going to see a short-covering rally and that will give investors an opportunity or an excuse to book profits after a steep sell-off.

Thanks for joining us today James.

Strong European PMI Data Revives Tapering Concerns

European stock markets move sideways after a largely positive session in Asia. The DAX tried to move higher in early trade but was knocked back by stronger than expected PMI readings, which revived tapering concerns and saw the EUR/USD moving higher again. The FTSE 100 meanwhile started lower but managed to recover losses. Eurozone peripherals underperformed marginally amid tapering concerns, but overall moves were very muted. In Asia, most markets closed higher after a positive session on Wall Street, with reports of progress on Trump’s tax overhaul and a positive Japanese PMI reading underpinning confidence. The Hang Seng continues to outperform on earnings optimism, while the ASX closed in the red. Oil prices are also slightly higher trading at USD 47.70 per barrel.

The American Petroleum Institute reported that U.S. crude oil inventories declined by3.595 million barrels in the latest week which was more than expected. Cushing Oklahoma inventories, where WTI crude oil is priced, were also down 462,000 barrels, for the week ended August 18. Gasoline inventories rose climbing 1.402 million barrels, while distillates were up 2.048 million barrels.

Eurozone August PMI Improved

Eurozone preliminary August PMI unexpectedly improved in the composite number. Individual readings were mixed, but the unexpected rise in the manufacturing reading to 57.4 from 56.6, still helped to compensate for the dip in the services reading to 54.9 from 55.4 and left the composite at 55.8, up from 55.7 in the previous month. Expectations had been for a steady to lower number. The ECB has already acknowledged that the recovery is strengthening, but remains firmly focused on still weak inflation and wage growth, arguing that the recovery still needs substantial monetary support.

Japan flash August manufacturing PMI rose to 3-month high of 52.8, up from 52.1. The index also remained above the 50 which designates expansion for the 12th consecutive month and rose to the highest since May. The preliminary index for new orders rose to 52.7 from a final 51.8 in July. If confirmed, that would mark a three-month high. The index for new export orders rose to 52.2 from 50.9 in the previous month. This comes on the heels of a better than expected Q2 GDP report, which shows that the world’s this largest economy is continuing to expand.

Stocks Consolidate Ahead of ECB as QE Tightening is Expected in the Autumn

European stock markets move sideways ahead of central bank decisions in Europe and Japan. The DAX has been swinging between gains and losses during the early AM European session, while the FTSE 100 was up slightly. The Stoxx Europe 600 also moved higher with Electrolux AB and ASML Holding NV advancing after earnings reports. Eurozone peripheral markets underperformed and the Spanish IBEX down amid reports that the ECB is discussion tapering options ahead of a decision in September. The Euro retreated, but that failed to give the DAX is a major lift as markets wait for Draghi’s comments tomorrow. Similarly, in Asia, the Nikkei underperformed with a mere 0.10% gain ahead of the BoJ and amid a broad move higher in other markets. The CSI 300 was up 1.71% at the close, Hang Seng and ASX 0.56% and 0.79% respectively as USD stabilized. U.S. stock futures are mixed, as investors continue to eye not just central bank decisions, but also U.S. politics.  Morgan Stanley reported financial results beating on the top and bottom line.

WTI crude futures are up 0.3% at $46.53, slightly off the intraday high at $46.64. Today’s range has so far remained within yesterday’s range, with the latest leads having been mixed. API data showed that while U.S. inventories of crude rose by 1.6 million barrels in the latest reporting week, gasoline stocks dove by an outsized 5.4 million barrels. New data out of Libya and Nigeria, meanwhile, is showing that supply from these countries continues to rise, with August loading schedules for the latter, for instance, rising to over 2 million barrels per day. Prices remain down by 13.4% on the year-to-date, up 3.5% on the year-on-year comparison, and down by 54.9% compared to prices three years ago.

The ECB Will Decide on QE in the Fall

The ECB will decide on QE in the fall according to reports.  The source story from Bloomberg suggests the analysis doesn’t mean a stimulus change is imminent, as the QE schedule has already been set out for the rest of the year. There haven’t been formal discussions on the future of the program and officials have limited appetite for any significant change in their policy language for now, as they agree that the ECB needs to move carefully, amid the risk of fresh taper tantrums. The central bank meets tomorrow and these issues should become clearer.

Global Equities Gaining Moderately as Investors Show Caution

Asian markets have been positive today following the results from the States on Monday. However, European equities have been cautious and mixed. The JOLTS Job Openings report will come from the States today. However, investors are also getting ready for Janet Yellen’s testimony in Washington on Thursday.

 Janet Yellen Speaking Before Congress on Thursday

U.S investors turned in gains on the three major Indexes on Monday, which followed in the positive wake from Friday’s solid outcome. However, Wall Street has not turned in a stellar month of trading, as investors continue to express signs of nervousness. Jobs data will be brought forth with the Jolts Job Opening statistics today. However, investors are beginning to eye the monetary policy hearings which will start in Washington on Thursday before Congress with Federal Reserve Chairwoman Janet Yellen taking questions. Cautious optimism is fueling the range trading being seen the broad markets among investors.

Japanese Money Supply Data Mixed

The Hang Seng led gainers in the Asian equity markets. And the All Ordinaries Index from Australia was able to reverse off early declines and finish with positive momentum. The Bank of Japan’s Money Stock report which was published showed more cash circulating in the Japanese economy, but last month’s figure was revised downwards. The Yen continues to range trade against the U.S Dollar and appears to comfortably be trading above the 114.00 level in the short-term.

European Economy Improving via Data

Italian Industrial Production numbers came in better than expected today. The positive number from Italy is another signal the European economy is continuing to improve. The Euro remains near the 1.14 juncture against the U.S Dollar. Important employment figures will come from the U.K tomorrow, including the Average Earning Index report which will provide insights regarding inflation for Britain. The Pound is trading around 1.29 against the U.S Dollar early today.

Short Term Consolidation in Crude Oil

Crude Oil has traded in a tight range the past day as investors have let the commodity consolidate in the short-term. However, tomorrow’s Crude Oil Inventories numbers are on the horizon and speculators are likely positioning themselves ahead of the report.

Yaron Mazor is a senior analyst at SuperTraderTV.

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Market Snapshot – Brexit Begins As Britain Delivers Article 50 Letter

Global Stocks Mixed as Brexit Begins

European stock markets are down from earlier highs and markets are struggling, with the DAX still holding on to a gain, while the FTSE 100 is now slightly in the red. Markets initially moved higher, following on from a largely positive session in Asia, where the ASX managed to extend Tuesday’s gains as a stronger than expected U.S. consumer confidence hit a 16-year high. Markets are still set for a fifth straight monthly gain, and in Europe DAX and FTSE 100 remain at high levels, but investors are cautious as the U.K. hands in the divorce papers to the EU.

EU officials had to wait 9 months, but the U.K. is finally ready to trigger Article 50 today, which will start the process to review a total of 20,833 laws and regulations that were in effect in the EU and Britain at the beginning of the year.

Oil Prices Edge Higher Ahead of EIA Report

Crude Oil futures are trading higher on Wednesday. The market is being supported by supply disruptions in Libya and the growing possibility of an extension of OPEC’s program to reduce output, trim supply and stabilize prices.

Late yesterday, the American Petroleum Institute’s inventories report showed a build, but this was in line with expectations. Today, the U.S. Energy Information Administration is scheduled to release its weekly inventories data at 1430 GMT. It is expected to show a build of 1.2 million barrels. The market could break out to the upside if the number beats expectations.

Crude oil is up 0.45% to trade at $48.58, Brent oil is up 0.54% at $51.7.

US Dollar Up on Consumer Confidence Data and Fed Speakers, Sterling Steadies

U.S consumer confidence figures hitting a 16-year high was certainly a boost for the markets, with the weaker Dollar contributing to a narrowing in the U.S goods trade deficit, but as we have seen in recent weeks, direction for the Dollar and U.S equities is now more influenced by the U.S administration than by the FED.

FOMC members have been on the more hawkish side this week, but the commentary continues to be ignored by the markets with it being too soon after the March interest rate hike to begin considering whether a 4th rate hike is a realistic possibility.

The US Dollar index is trading at 99.81, up 0.28% with markets attention on Brexit fears.

The British Pound is trading slightly lower after Britain delivered Article 50 letter to start Brexit process. GBP/USD is trading at 1.2418, -0.23. The sterling moves higher also versus the Euro (+0.17%).

Eyes on US-Mexico Border Wall as Government May Force Funding Shutdown

Next April on the 28th Donald Trump will demand the required funds to built the wall. There are probabilities that the democrats may not pass the budget of the next fiscal year if Trump will demand funds for the wall, especially if some republicans are not in the same trench with him.

The shutdown usually occurs when there is a conflict between the executing and legislative branch regarding the funding to create the “funding Gap”. That happened during the Obama presidency, when the republicans had the majority of the house. Then, it happened because of the Obama Care Act, and more than 2 million of the Federal employees found themselves out of work for about 16 days. This will be the biggest block in the history since the next session to discuss the new year budget will be in September.

Market Snapshot – US Dollar Rises on Rate Hike Hints

US Dollar Rises on March Rate Hike Hints

The markets woke this morning with the Dollar bulls in the driving seat and, while the U.S administration may have managed to hold back any Dollar rally over the last week, there will likely be a realization of just how much influence the FED and monetary policy has on the direction of the Dollar, with even a decision to delay tax reforms, failing to peg back the Dollar ahead of the release of February’s FOMC meeting minutes tomorrow evening.

The US Dollar rose broadly after two of the FOMC members pointed for a possible rate hike in March.

The dollar is also taking a cue from higher US treasury yields as all 10Y US bond is up 1.20%. The US Dollar Index is trading at 101.54, gaining 0.61%, with the EUR drop down 0.72% at $1.0536.

Oil Prices Jump as OPEC aims for a Deeper Output Cuts

Oil futures spiked higher shortly before the regular session opening as investors continued to react positively to the news that OPEC is sticking with its plan to cut daily output and as investors become more optimistic about the plans success.

Traders are primary reacting to the news that OPEC Secretary General Mohammad Barkindo said January data showed conformity from participating OPEC nations without curbs had been above 90 percent and oil inventories would decline further this year.

Crude oil is trading at $54.72 a barrel, up 1.75% while Brent Crude Oil is trading at $57.05 up 1.55%.

Global Stocks Move Mostly Higher

European stock markets are mostly higher. The DAX managed to move further above 11800 while the FTSE 100 continues to underperform. Asian stock markets also traded mixed overnight. Japanese markets benefited from a weaker Yen, and the Nikkei closed with a 0.68% gain, after hawkish Fed comments buoyed the Dollar. The CSI 300 was up 0.33% at the close, while Hang Seng and ASX 200 headed south.

In Europe stronger than expected PMI readings helped the DAX to move higher, but markets continue to eye Le Pen’s rise in the polls with concerns and CAC 40 underperformed while French yields continue to rise amid Frexit speculation.

Gold Priced Edged Down as Traders Await Rate Hike Details

A spike in the U.S. Dollar is helping to put pressure on April Comex gold futures on Tuesday. The notion that the Fed will raise rates in March is the driving force behind the dollar’s strength. When the dollar strengthens, demand for dollar-denominated gold tends to drop.

A rate hike in March could probably confirm that we are going to have at least three rate hikes this year and this should greatly cheer the dollar bulls who are then likely to take control.

The Gold is trading in a bearish sentiment on Tuesday at 1230.35, down 0.71%.

ASX 200 Looking Healthy

The Australian Stock Exchange 200 index looks very healthy currently, as we have pulled back during the Thursday session to test the 50-day exponential moving average. The 5600-level underneath has been supportive, and as it stands, looks to be a bit of a “floor” in this market. The pullback has been gradual and subtle, and gives us an opportunity to pick up value at current levels. The Australian markets will of course react positively to the possibility of Asian growth, and of course construction.

It appears that all things Australian are doing well at the moment, and of course this looks to be a continuation of that. Recently we had tested the 5800 level, and pulled back from there, I believe that we will eventually reach towards that area but we may have a bit of choppiness on the way there. Every time we pull back, there should be value hunters out there looking for the opportunity to take advantage of what is a nice uptrend.

S&P/ASX 200 Chart
S&P/ASX 200 Chart

I have no interest in selling this market, at least not until we break below the 5500 level, which does not look very likely at the moment. If the Australian dollar exploded to the upside, that could put a bit of pressure on the stock market but as long as the gains in the currency are steady, that shows more healthy growth out of Australia, as it shows that commodities are gradually being bid up, and that generally means growth, not so much speculation.

Longer-term, I don’t see any reason why we won’t reach towards the 6000 handle, and possibly beyond. The market had formed a very hard bottom at the 5000 region, and now looks likely to head to that next psychologically significant number. For those of you that have the ability to trade the CFD market, this could be a nice longer-term trade.

Annual Global Indices Outlook – 2016

The major global stock indexes were relatively strong in 2016 with most of the year’s gains coming in the last two months of the year. In the U.S., for example, a post-election rally drove all the major indexes to record highs. The smaller-cap, Russell 2000 Index, which is typically the most volatile, performed the best. As of December 23, this index was up 20.10% for the year.

The technology-heavy Nasdaq Composite Index lagged the other major indexes, posting an 8.20% gain as of December 23. The catalyst behind the relative weakness was a surge in long-term interest rates which may have fueled concerns with investors over whether a lower value should be placed on the future earnings of the many fast-growing and highly valued stocks included in the benchmark index.

2016-monthly-nearby-e-mini-dow-jones-industrial-average-futures
2016 Monthly Nearby E-mini Dow Jones Industrial Average

The blue chip Dow Jones Industrial Average posted a robust 13.57% gain while the benchmark S&P 500 Index was up 9.84%. Each performed well because of their exposure to financial market shares and the industrial sector.

Higher interest rates and improved lending margins, along with expectations of less regulation under Trump’s administration, helped underpin financial sector stocks. Industrial sector stocks were also particularly strong, bolstered by expectations for higher defense and infrastructure spending.

2016-monthly-nearby-e-mini-sp-500-index
2016 Monthly Nearby E-mini S&P 500 Index

Helping to put a lid on the Dow and S&P 500 near the end of the year were weak utilities and telecommunication shares. Rising U.S. Treasury yields made their high dividend yields less appealing to investors.

As far as the S&P 500 sectors were concerned, energy was the best performing with an expected gain of 26.75% in 2016. This is followed by Financial with a return of 21.94%, Industrials up 18.83%, Materials up 15.78 and Technology with a 14.34% increase.

Rounding out the top ten sectors, Utilities were up 12.32%, followed by Consumer Discretionary stocks which were up 5.49% and Consumer Staples which came in up 3.11%.

The weakest year-to-date sectors were Healthcare, losing 3.57% and Real Estate which is in a position to lose about 2.74%.

2016-monthly-nearby-e-mini-nasdaq-100-index
2016 Monthly Nearby E-mini NASDAQ-100 Index

Major Global Equity Indexes

It is often said that a rising tide lifts all ships and that proved to be true in the major global equity indexes in 2016. The differences in their performances can be attributed to the weighting of various sectors and their exposure to return and risk.

In the U.K., the FSTE 100 Index rose 13.01%. This was followed by Australia’s S&P/ASX Index with an 8.07% gain.  Germany’s Dax Index last traded on December 23 up 6.73%, followed closely by the grossly underperforming Japanese Nikkei 225 Index which is up 2.70% for the year just a week before the new year.

Events

During the first month of 2016, global equity markets plunged as concerns over China’s economy led to extreme weakness and market volatility. Throughout the Spring, there remained worries about the perils of the global economy.

Global equity markets were hit hard initially after the U.K. voted to leave the European Union in late June, however, the markets were able to recover throughout the summer.

The markets traded sideways from early July to early November as investors awaited the outcome of the U.S. presidential elections and news from the Fed regarding the timing of the next interest rate hike by the Fed.

Although it was heavily predicted that a Donald Trump win in the election would crash the stock markets, his victory actually triggered a huge rally that drove the major U.S. Indexes to new all-time highs. At the end of year, the Dow stood within striking distance of the 20,000 mark.

Forecast

Three things to consider at the start of 2017. Firstly, it’s too early to assess the election’s impact on the economy and stock markets. Secondly, I think that Trump’s win boosts hope for fiscal stimulus and deregulation and these are positives for certain sectors of the economy. Thirdly, the strength of the market will be determined by its ability to withstand the Fed’s expected rate increases.

Essentially, there will be a bullish tone at the start of the year because of optimism over Trump’s proposals. Fiscal stimulus and deregulation are not bad words, provided the money is spent right and the new rules don’t lead to problems in the futures. Finally, the stock market has operated for a long time without the threat of a rate hike. The frequency of the Fed’s hikes in 2017 will give investors another issue to worry about so this could develop into a problem if investors aren’t prepared for the impact of higher rates.

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The Yen Holds Steady, Shares of SoftBank Soar

Today’s trading in Asia saw markets trade mostly higher. Australia struggled after a weak gross domestic product (GDP) report. Shares in Japan’s benchmark stock exchanged moved higher after US President-elect Donald Trump deal with SoftBank to invest in the US economy and create new jobs.

In Australia, the ASX 200 was up about 0.91 percent. The benchmark saw broad base gains through most of its sectors, except energy which fell 0.7 percent. Australia, this morning reported that their third quarter GDP grew, quarter on quarter, at 0.5 percent and 1.8 percent on the year. This was below the 2.5 percent growth rate economists had expected. The GDP for the second quarter was revised up to 0.6 percent from the original 0.5 percent print. The third quarter decline was the biggest since 2008 and could change the Australian central bank’s outlook on monetary policy going into the New Year.

After the news came out the AUD/USD Forex market lost 0.5 percent to trade at 0.7420 as of 9:00 am GMT time.

The Nikkei 225, Japan’s benchmark, was higher this morning as shares of SoftBank jumped 3.6 percent. The bank reached an agreement with President-elect Donald Trump to invest $50 billion in the United States and help create 50,000 jobs over the next four years. The paperwork from Trump’s meeting also featured the logo of Foxconn, also known as Hon Hai. They supply Apple’s iPhones. It is not clear as what their role is at this time but shares of this Taiwanese listed firm were up over 0.8 percent.

Looking at the broader currency market, this morning, the US Dollar index, which tracks the US Dollar against a basket of other currencies was at 100.59. The index was closer to 101.50 last week. The USD/JPY Forex pair was steady near the key ¥114 level. This Forex market, as of 9:00 am GMT time was trading at 114.31.

RBA Holds Rates; Asia moves Higher, Global Stocks Mostly Higher

This morning, the financial and equity markets in Asia and the Pacific Rim moved higher. The Central Bank of Australia (RBA) kept its headline cash rate the same and investor uncertainty with the failed Italian referendum vote is fading.

In The Down Under, the S&P ASX 200 was up nearly 0.52 percent thanks to strength in the materials sub-index which rose over one percent. The heavily weighted financial sub-index was up 0.85 percent.

This morning the Reserve Bank of Australia, held its last monetary policy review and decision for the year. The central bank held its main cash rate at 1.5 percent, as expected. The RBA also stated, in the post policy statement, that the rising Australian Dollar could pose a risk for the country’s economic transition. The country is moving away from a resource-led economic base.

As of 09:15 am GMT time, the AUD/USD moved lower to $0.7436.

Later today, other economic data will come from China as their currency reserves for November are due. Japan reported that earnings rose 0.1 percent. This was unchanged from the same time period last year. As far as the main stock bourse in Japan was concerned, the Nikkei 225 was up 0.47 percent. The yen did strengthen against the US Dollar. However, the USD/JPY is currently trades unchanged at 113.85. The yen was neat ¥114 last week.

In South Korea, the Kospi Composite Index was up over one percent after the ministry of finance said it would allocate 68 percent of its budget in the first half of 2017 to boost economic growth.

Looking at currencies, today, the euro was trading, as of 09:00 am GMT time, at 1.078. The EUR/USD Forex market had hit a 20 month low at 1.0503 on Monday. The rebound in the euro is partially thanks to investors digesting the recent “no vote” in Italy on Senate reform as a “no vote” on European Union membership. There was a small sell off in Italian government bonds, which saw yields rise which caused the EUR/USD to move higher and a rally in European stock bourses.

The Euro Hits a Fresh 20 Month Low after Renzi’s Defeat

This morning, during Asian trade hours, the euro has hit a 20 month low as investors are digesting the implications of the No Vote in Italy after Italian Prime Minister Matteo Renzi was embarrassed over a vote regarding constitutional reforms.

Many of the Asian markets were in the red this morning, as the S&P ASX 200, in Australia, lost 0.80 percent. Losses were capped by a rise in utilities, which were up 2.77 percent. In New Zealand, the NZX 50 lost grown after Prime Minister John Key said he would resign. He will not seek a fourth term. As a result the New Zealand Dollar fell against the US Dollar. As of 11:20 am HK time, the NZD/USD was trading at 0.7088. This is near the session low of 0.7070.

In Japan, the Nikkei 225 was down 0.82 percent and in South Korea the Kospi Composite Index was down around 0.25 percent. In Taiwan, the Taiex as flat. This comes after US President-elect Donald Trump tweeted that Taiwan’s President Tsai Ing called to congratulate him. This call earned a strong rebuke from China.

Turning back to Europe, Italy’s Prime Minister Matteo Renzi said the voters showed a clear rejection of any legislative reform. He will meet with his cabinet today as well as resign to the country’s President Sergio Mattarella.

This “no vote” will lead to some political instability with another election in Italy. It is about the potential of an election more than missing the opportunity to make long-term constitutional changes. The real concern for the financial markets, is whether or not these new elections will lead to the election of the Five Star Movement whose policy is to hold a referendum on whether or not Italy should leave the European Union. This is not a clear process, and not sure whether or not Italy can actually leave the EU. However, the potential of a referendum will generate significant amount of financial market volatility as there is a lot of premium built into the markets at this time.

Nikkei Jumps 2% on The OPEC Deal

This morning, Japan’s benchmark Nikkei surged more than two percent on the heels of sold manufacturing surveys out of China and upbeat sentiment following the recent OPEC deal to cut oil production. This is the first deal to cut production since 2008.

The Nikkei 225 jumped 2.25 percent, led by energy plays like Inpex which soared over ten percent, however close trading day at 1.12% up. Japan Petroleum Corporation rocketed nearly 13 percent and a weaker yen also boosted exporting plays. The USD/JPY Forex pair, as of 11:20 am HK time was trading at 114.35.

In Australia, the S&PASX 200 was up 1.10 percent as the energy sub-index recovered up nearly seven percent. The materials sub-index also went up 2.3 percent. Today’s economic data showed that business sentiment ell by four percent in the third quarter. Way worse than the expected 2.5 percent decline. This fall in investments will likely have an impact on the third quarter gross domestic product release on December 7.

Shares on the Chinese stock indices rose today as the Shanghai Composite rose 0.67 percent and the Shenzhen Composite rose 0.42 percent. Stocks on the Hang Seng Index rose 0.47 percent. This morning, China released its official manufacturing purchasing managers index (PMI) which rose to 51.7. This was above the expected 51.0. The Caixin/Markit Manufacturing PMI fell to 50.9. The number came in at 51.2 in October but beat expectations.

In Japan, the manufacturing PMI came in higher-than-expected in November at 51.3. Economists expected a print of 51.1. In South Korea data showed that the CPI rose by 1.3 percent, annually, but missed the expected 1.5 percent increase. Their target for inflation is two percent and this print leaves room for further monetary easing.

The news was positive for the South Korean Kospi which rose 0.2 percent. Other data, for South Korea, showed that their exports rose 2.7 percent, above the expected 1.2 percent. Imports jumped 10.1 percent, well above the expected 2.9 percent increase. Shipments to China also grew for the first time in 17 months.

Pressure on Oil as OPEC sets to Meet Today, Oil Jumps More Than 8%

Oil Prices rise this morning more than 5% after speculations of curb output deal agreement among OPEC members. The Algerian oil minister said earlier that he is 99 per cent certain OPEC members will reach a deal today. His comment spiked oil prices.

This morning, markets in the Asian and Pacific Rim were mixed in trade as energy stocks were under selling pressure thanks to an overnight decline in oil prices. Investors are eyeing today’s OPEC cartel meeting in Vienna for an accord to cap production.

In Japan, the benchmark Nikkei 225 closed flat while stocks on the South Korean Kospi Composite Index gained 0.26 percent. In the Down Under, the S&P ASX 200 lost 0.31 percent. Miners led the losses on the Australian exchange and material sub-index dropped 2.3 percent. The energy sub-sector tracked oil prices lower and shed 1.45 percent.

In Hong Kong, the Hang Seng Index was up 0.08 percent and mainland Chinese markets were a tad lower. The Shanghai Composite was down 0.2 percent and the Shenzhen Composite lost 0.1 percent this morning.

Overnight, the price of the black gold fell almost four percent as a fresh wave of pessimism over any hope that OPEC would reach a deal to curb the production of crude oil diminished. Today’s morning, oil prices are trading positively . Crude oil is trading 1.78% up while Brent oil is trading 1.80% up. There are oil ministers from the 14 nations that make up the cartel in Vienna and there are signs of cracks in any deal. They are scheduled to announce any deal later in the day, if there is one.

This put pressure on energy plays throughout the Asian and Pacific Rim. Shares of Santos fell over one percent. Oil Search lost 1.6 percent and Woodside Petroleum she over 2.3 percent. In Japan, Fuji Oil lost over 1.3 percent and in South Korea, S-Oil lost nearly 1.29 percent. Hong Kong listed oil plays were also mostly lower.

Turning to the broader Forex market, this morning, the Dollar pulled back again. This comes despite an upward revision to the third quarter gross domestic product (Q3 GDP) for the United States and a stronger-than-expected consumer confidence report. Profit seekers are still skimming a little off the top as the Dollar rally does not appear to be quite finished yet.

The second reading for the US Q3 GDP came in at an annual rate of 3.2 percent. This was an upward revision from the original 2.9 percent. Consumer confidence came in at 101.1, above expectations.

Strong Yen Pushing The Nikkei Lower, Oil Drops on Output Cut Doubts

The financial markets in the Asian and Pacific Rim had a mixed day to start the trading week this morning. Japanese stocks moved slightly lower after seven straight trading days of gains. The Japanese yen traded sharply higher against the US Dollar and oil prices moved lower.

In Japan, their headline stock bourse, the Nikkei 225, closed down 0.13% as the yen gained against the Dollar. This is seen as a negative for the country’s exporters. The USD/JPY, as of 09:00 am GMT time, is down one percent to trade at 112.02. This Forex market had been trading near ¥113 last week.

In the Down Under, the S&P ASX 200 was also down 0.79% as the energy sub-index dragged the Australian stock bourse lower. This sub-sector was down 1.7 percent tracking the price of crude oil lower. Materials also fell on the day, down 1.14 percent.

Oil prices fall this morning over doubts of OPEC producers to generate an agreement of output cut at their meeting on Wednesday. Crude oil dropped one percent to trade at 45.61 while Brent crude oil trades at 47.83 down 0.85%.

In South Korea, hundreds of thousands of protestors rallied calling for the ouster of President Park Geun-hye who is embroiled in an influence-peddling scandal. At first, the Kospi Composite Index fell then reversed course to trade up a tad over 0.3 percent.

In China, the Shanghai Composite Index was up a half percent and the Shenzhen Composite Index was virtually flat up a mere 0.1 percent. In Hong Kong, the Hang Seng Index was up 0.6 percent on the day. Last Frida, China and Hong Kong security regulators announced the Hong Kong-Shenzhen direct connect would start on December 5. This would allow foreign investors to trade shares on the Shenzhen in Hong Kong.

Looking at the broad Forex market, the US Dollar Index, which sees the US Dollar trading against a basket of currencies, fell this morning. The Dollar as trading, as of 09:00 am GMT time, at 100.95. The index had surged to 102.07 last week. A high not seen since April 2003. The soft Dollar is seen as corrective as the almighty Buck remains strong thanks to US President-elect Donald Trump’s vast infrastructure spending program.

The Australian ASX Leads Asia This Morning

Australian stocks climbed higher this morning as they tracked US stocks, which rose to fresh record highs overnight. Other Asian markets stumbled and had a mixed performance.

This morning the Australian benchmark stock index, the S&P ASX 200 was up 1.31% with most of its sub-sectors in the green. The heavily weighted financial sub-index outperformed rising 1.1 percent on the day. The materials sector climbed 1.7 percent and materials also rose. The Australian Dollar (AUD/USD) gapped higher to $0.7438 during the session. This is up from 0.7320 earlier this week.

The markets in the Down Under were driven by commodity prices. The view is that commodity prices are going to remain a bit higher thanks to an increase in demand from the United States and China. This caused mining plays to rise on the day. Companies like Rio Tinto rose 2.3 percent. Fortescue Mining rose 2.5 percent and BHP Billiton jumped over 2.8 percent on the day.

Turning our attention to the other regional markets, Japanese financial markets were shuttered for the Labor Thanksgiving holiday today. In New Zealand, the NZX 50 rose nearly 0.3 percent while in South Korea, stocks on the Kospi Composite Index were marginally higher. In Hong Kong, shares on the Hang Seng Composite Index also rose moderately. On mainland China, shares were mostly mixed on the day. The Shanghai Composite rose 0.1 percent and the smaller Shenzhen Composite rose fell a bit lower.

Looking at the broad Forex universe, this morning, the US Dollar Index, which tracks the buck against a basket of currencies, was trading at 100.99 at 10:30 am HK time. Pretty unchanged from yesterday afternoon at 101.04. The Japanese yen is trading at 101.11 against the US Dollar, as it fell from levels near ¥110 last week. Looking at the euro this morning, the EUR/USD is trading near 1.0621 and the British Pound was near 1.2407.

Asian Markets Mixed as Central Banks in Focus

This morning, Asian markets were mixed as traders are on the sidelines waiting on key monetary policy decisions, due on Wednesday from the Federal Reserve (Fed) and Bank of Japan (BOJ). The monetary policy decision from the Reserve Bank of New Zealand is also due.

Stocks and financial markets were closed yesterday for a public holiday. The Nikkei 225 reopened today to trade marginally higher. The index had been lower by 0.4 percent earlier in the day. The Topix, in Tokyo, was also higher on the day. In Korea, the Kospi Composite Index was modestly higher.

In Australia, the S&P ASX 200 was a bit lower with most sectors in the red after RBA (Resrve Bank of Australia) meeting signaled a neutral stand. The energy sector was down over one percent and the heavily weighted financial sub-index was also lower on the day. Yesterday, the ASX was closed thanks to technical glitches. The opening was delayed and then trading was halted in the afternoon.

In Hong Kong, the Hang Sang was a bit lower and the sock markets in China were virtually flat for today.

Asian Traders are Eyeing Central Bank Decisions

Markets in the Asian and Pacific Rim were rather muted as traders are waiting on monetary policy announcements from the Fed and the BOJ. Both are due on Wednesday. The RBNZ will also be announcing this week. This caused the trading ranges to be rather narrow this morning.

Markets have seemed to reach a point that there is an agreement between risk and reward. This means markets, in all financial arenas, should remain rather muted and quiet until both those main central banks announce tomorrow.

As far as the local currencies are concerned, the USD/JPY is treading water. Both the Australian Dollar and the Kiwi Dollar have held above key trend line supports for now. The US Dollar has also settled down as traders are content to wait until tomorrow. The US Federal Reserve Bank through its Federal Open Market Committee (FOMC) is likely to keep rates on hold this month. A string of recent economic data has come in weaker than expected. The policy decision is not as important as the after policy announcement. Should the remarks be more dovish than expected, the US Dollar and its relevant Forex markets could fall lower, as the Dollar will lose strength.

With that said, the yen will be very dependent on what the Bank of Japan does. Nobody is expecting the Japanese central bank to pull the trigger on any new policy, however, their inactions in the past has eroded confidence in their effectiveness, causing the yen to strengthen.

 

S&P/ASX 200 Fundamental Analysis – September 16, 2016 Forecast

The S&P/ASX 200 Index is expected to follow the lead of the strong U.S. stock market and open up higher on Friday. The early call is for an opening about 0.20% higher. On Thursday, the index closed at 5239.90, up 12.20 or +0.23%.

The price action suggests the market may have found support near the July lows. On Thursday, the index attracted buyers at 5192.20. Despite the strong finish, the index is still expected to close lower for the week. Last week’s close at 5339.20 is just not a valid target given the normal daily volatility.

The catalyst behind the rally is greater demand for higher risk assets. Support for a rally today is likely to be generated by a strong performance in U.S. technology stocks and a rebound rally in crude oil. The news that Treasuries retreated with the dollar amid data showing the American economy is on uneven footing, helping to underpin higher-yielding assets.

There are no major economic reports until the Bank of Japan and the U.S. Federal Reserve release their monetary policy statements on September 21. However, the reports from the U.S. on Thursday indicated a sputtering economy. Weak U.S. retail sales and manufacturing activity led investors to reduce the odds of a Fed rate hike in September. This was the main reason for the increased demand for higher-yielding stocks.

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Daily S&P/ASX 200 Index

FORECAST

Look for a higher opening on Friday as investors piggy-back the strong rally in the U.S. markets. Buying pressure is expected to increase if U.S. stocks, particularly in the technology sector, continue to rise. The expected rally could continue to rise if crude oil catches a bid. This sector has been largely responsible for weakness in the Dow and the S&P recently. If crude oil prices strengthen then look for the energy sector to rise along with it.

Most of the strength today in the S&P/ASX 200 is expected to come from the “Big 4 Banks” and the energy sector.

S&P/ASX 200 Fundamental Analysis – September 15, 2016 Forecast

Australian stocks rebounded from four-straight losing sessions on Wednesday, supported by a strong performance in the financial sector which reacted positively to strong demand for the country’s 30-year bond auction. The S&P/ASX 200 closed higher, finishing up 19.92, or 0.4 percent, at 5227.70.

The index did not get much guidance from U.S. stock indices so it was up to the domestic shares to provide the support. The major support came from the financial sector which was influenced by a strong performance by the so-called “Big Four” banks, which gained between 0.6 percent and 1.5 percent.

Telstra Ltd., a telecoms giant, reversed early losses to finish 2.6 percent higher, posting its biggest daily percentage gain since early May.

The upside was limited by losses to mining giants BHP Billiton Ltd and Rio Tinto Ltd, which slipped 1 percent and 1.3 percent respectively. These stocks were reacting to this week’s weakness in the energy sector.

FORECAST

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Daily S&P/ASX 200 Index

Despite the higher close, the S&P/ASX 200 is expected to open about 15 points lower due to mixed results in the U.S., led by another steep decline in the energy sector.

Domestically, investors will be monitoring the release of Australia’s employment report. It is expected to show the economy added 15,000 jobs in August, with the unemployment rate remaining at 5.7%.

We could see some volatility today since this is options and futures expiration day. However, accompanying the increased volatility is expected to be sizable volume which may mean we won’t see the wild swings we’ve grown accustomed to seeing.

Although the index is called lower, BHP Billiton and Commonwealth Bank’s American Depository Receipts (ADR) are called higher. In addition, Goldman Sachs upgraded CBA. This is causing come confusion for investors ahead of the opening so we may see some interesting price action.

At this time, investors would like to see some stabilization in the market. Uncertainty over the timing of the next Fed rate hike, next week’s Fed interest rate decision and a possible return of the bear market in crude have been wreaking havoc on investor confidence.

The S&P/ASX 200 trend is down and volatility is relatively higher. This likely means we’ll still see some weakness over the next week, or at least a sideways trade because I don’t believe anyone wants to step in front of the Fed at this time.

S&P/ASX 200 Fundamental Analysis – September 14, 2016 Forecast

Australian shares fell for a fourth-straight session on Tuesday, with the S&P/ASX 200 closing at 5207.80, down 11.81 points or -0.20 percent. It was the lowest finish since the index closed at 5197.50 on July 6. Traders blamed a decline in financial and energy stocks for the weakness.

Although the U.S. markets posted a strong gain on Monday due to dovish comments from a key Fed official, the move was attributed to short-covering and didn’t carry over to the ASX 200. The price action also suggests that investors remain jittery about the direction of U.S. interest rates ahead of next week’s Federal Reserve Monetary Policy Committee meeting on September 21.

By shedding risky assets, Aussie share traders appear to be nervous about the outcome of the Fed meeting, however, U.S. Fed Funds traders are showing a 15% chance of a September rate hike and a 50% chance of a rate hike in December.

Locally, financial stocks were responsible for more than half of the losses on the ASX 200, with the “Big Four” banks weakening between 1 percent and 1.3 percent. The catalysts behind the selling pressure were concerns over earnings growth and competition.

A steep drop in crude oil prices weighed on energy stocks. Share prices tumbled to their lowest level in two months, led by Oil Search which fell 2 percent.

S&P/ASX 200 DAILY FORECAST

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Australian stock market investors are bracing for a lower opening on Wednesday, due to the sharp sell-off in U.S. equity indices. U.S. markets plunged sharply lower as the positive reaction to dovish comments from a noted Fed official on Monday faded and as investors faced the reality of a lower crude oil prices due to a forecast for lower demand.

U.S. listed shares of BHP Billiton fell more than 5 percent in New York, with Rio Tinto’s U.S. –listed stock falling more than 4 percent.

In addition to the drop in crude oil prices, iron ore fell 2.9 percent. This put pressure on the energy and commodity sectors of the broad index.

Investors should note that volatility is back after a two-month absence following the Brexit vote. The benchmark S&P 500 Index traded 43 sessions without a 1 percent move. However, the last three trading sessions has seen the VIX (Volatility Index) jump 17.7 percent. Over the short-run, this should be a concern, but it is actually right on pace with its one-year average.

The early call for Wednesday is for a 0.50 percent lower opening. This would put the S&P/ASX 200 at about 5182.00. BHP and CBA are two stocks expected to lead the broader-based index lower. They are called 1.6 percent and 0.5 percent lower, respectively.