Weekly Market Review
9th September 2013
The good news may be bad news for the Federal Reserve as it considers when to begin scaling back its stimulus. While unemployment dropped last month to 7.3 percent, the lowest level since December 2008, the decline occurred because of contraction in the workforce, not because more people got jobs. Labor-force participation — the share of working-age people either holding a job or looking for one — stands at a 35-year low, according to an article pushed by Bloomberg News.
Investors suffering the worst losses in Treasuries since at least 1978 can add dollar sales by emerging-market central banks to their list of challenges. Speculation that the Federal Reserve, the biggest buyer of Treasuries, will reduce its purchases sent U.S. debt down 4.1 percent this year and boosted the dollar against developing-nation currencies for four straight months, matching the longest streak since 2001, according to Bloomberg data. India, Brazil, Russia and Indonesia have intervened in foreign-exchange markets, and dollar sales mean liquidating Treasuries, according to bond traders at Scotiabank and Bank of America Corp.
China’s consumer inflation stayed below target for an eighth month while factory-gate prices fell by the least in six months, reflecting an economic pickup that leaves room for officials to add stimulus if needed. The consumer-price index rose 2.6 percent, the National Bureau of Statistics said in a statement today in Beijing, matching the median forecast in a Bloomberg News survey. The producer-price index dropped 1.6 percent in August, the 18th straight decline, after July’s 2.3 percent decrease.
Japan’s economy grew faster than previously estimated in the second quarter, aiding Prime Minister Shinzo Abe’s reflation campaign as he considers whether the nation can withstand a sales-tax increase. Gross domestic product expanded an annualized 3.8 percent from the first quarter, higher than an initial estimate of 2.6 percent, reflecting stronger private capital investment, the Cabinet Office said in Tokyo today. The median forecast of 23 economists surveyed by Bloomberg News was for a 3.9 percent increase. The economy grew 4.1 percent in the first quarter.
U.K. Chancellor of the Exchequer George Osborne will promise to stick to his austerity plan and will caution against the tightening of market conditions too soon during a recovery still fraught with risks. “These are still the early stages of recovery,” Osborne will say today in London, according to extracts of a speech released by the Treasury. “Avoiding an unintentional and premature tightening of financial conditions,” while “staying the course with our deficit-reduction plan” will help counter domestic risks to growth, he will say. Osborne’s comments come a month after Bank of England Governor Mark Carney signaled interest rates won’t rise before late 2016, as he introduced so-called forward guidance in an overhaul of U.K. monetary policy.
EUR/USD: The EUR/USD traded higher on Friday after U.S. employers added fewer workers last month than forecast, damping speculation the Federal Reserve will cut bond purchases this month. Today, the pair was trading in the narrow range of 1.31800 and 1.31621 at the time of writing as investors are waiting for some data and news to get visibility on the direction of the pair. Today, no major economic events are expected in the Euro area and the U.S. The soft data likely to bring some slight fluctuations are; the Sentix Investor Confidence in the Eurozone (Forecast: -2.8 – Previous: -4.9), the German 6-Month Bubill Auction and the French 3-Month, 6-Month and 12Month BTF Auction. While the U.S will release the CB Employment Trends Index, the 3-Month Bill Auction and the 6-Month Bill Auction, as well as the Consumer Credit (Forecast: 12.50B – Previous: 13.80B). Trading is expected to remain sticky. Investors should also keep an eye on the latest news regarding Syria for more visibility. In the week ahead, the events likely to bring volatility are; Tuesday; France will release data on industrial production and Italy will publish data on gross domestic product. Thursday; The ECB will publish its monthly bulletin and the euro zone will publish data in industrial production. Later Thursday, the U.S will release the weekly government report on initial jobless claims, as well as official data on import prices. Friday; the U.S. will release reports on retail sales and producer price inflation, as well as preliminary data from the University of Michigan on consumer sentiment. The resistance level is at 1.34026 and the support level is at 1.29889 on the weekly chart.
GBP/USD: The Great Britain pound rose against the dollar on Friday after U.S. jobs data for August missed forecasts, dampening expectations that the Federal Reserve will start to phase out stimulus as soon as this month. Today, the GBP/USD was trading slightly higher at 1.56428 at the time of writing ahead of the RICS House Price Balance, which is forecast to come at 40% compared to the previous reading 36%. If a higher than expected reading is released, it should be taken as bullish for the GBP, while a lower than expected reading should be taken as bearish for the GBP. Regarding the U.S, no major economic event is expected today. The soft data likely to bring slight fluctuations are the CB Employment Trends Index, the 3-Month Bill Auction and the 6-Month Bill Auction, as well as the Consumer Credit (Forecast: 12.50B – Previous: 13.80B). Investors should wait for the data to come on market to get visibility. Investors should also keep an eye on the latest news regarding Syria to get indications on the movement of the pair. Ahead of the coming week, the events likely to affect the pair are: Tuesday; the BoE Governor Mark Carney and monetary policy committee members will testify on the inflation and economic outlook before the Treasury Select Committee. Wednesday; the U.K. will release government data on the change in the number of people unemployed, the overall unemployment rate and average earnings. Thursday; the U.S. will release the weekly government report on initial jobless claims, as well as official data on import prices. Friday; the U.S. will release reports on retail sales and producer price inflation, as well as preliminary data from the University of Michigan on consumer sentiment. The resistance level is at 1.57157 and the support level is at 1.55020.
WTI (Oil): Oil rallied on Friday to settle at the highest level since May 2011, as ongoing expectations for U.S. military action against Syria underlined concerns over a disruption to supplies from the Middle East. Oil prices also advanced as data showing a slowdown in U.S. hiring raised doubts about how quickly the Federal Reserve will curb its bond-buying program. Today, the commodity was trading lower at 110.015 at the time of writing as hedge funds reduced their bullish bets last week and China’s net crude imports shrank in August from a record high. China imported 21.2 million metric tons more oil than it exported as refiners shut the most plants for repairs this year, customs data showed yesterday. Sentiments remain fragile on the commodity as the U.S. Senate is expected to vote on a resolution for a strike against Syria by the end of the week. President Barack Obama will meet on Capitol Hill tomorrow with Senate Democrats, according to an aide who requested anonymity because the meeting hasn’t been publicly announced. On the other hand, Assad is disputing U.S. allegations that he used chemical weapons against civilians last month and said the Obama administration hasn’t proved he did, according to CBS News correspondent Charlie Rose who interviewed the Syrian president. Moreover, Russian President Vladimir Putin warned the U.S. against launching military action against the Syrian government without U.N. approval. Speaking at a news conference following the Group of 20 summit in Moscow on Friday, Putin said Russia would “assist” Syria if the country is attacked. The conflict and unrest may continue to support Oil prices as the Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency. Syria borders Iraq, the largest producer after Saudi Arabia in the Organization of Petroleum Exporting Countries. In the week ahead, investors will be closely watching Friday’s U.S. data on retail sales and consumer sentiment for indications on the strength of the economic recovery. Oil traders have closely been looking out for U.S. data reports recently to gauge if they will strengthen or weaken the case for the Fed to reduce its bond purchases. Any improvement in the U.S. economy was likely to reinforce the view that the central bank will begin to taper its bond purchase program in the coming months. The latest developments in the Middle East will also weigh on the price of oil. The resistance level is at 112.146 and the support level is at 107.462.
Good Luck in trading…
