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[Alpari UK]

Europe expected to open higher ahead of US jobs report

Today’s UK opening call provides an update on:

* Mario Draghi hints at rate cut in the new year;
* White House and Republicans hint at new talks on fiscal cliff;
* US jobs report takes centre stage today, however it may not have its usual impact on the markets;
* Poor manufacturing figures expected in UK and Germany.

Stock markets are expected to open higher in Europe this morning after Mario Draghi yesterday hinted at a rate cut in the new year.

Draghi claimed that a rate cut was extensively discussed which was taken to mean that more members are coming round to the idea. In reality, a rate cut doesn’t look likely at the moment with inflation still above 2%. On top of that Draghi also claimed that he didn’t want to do anything that may encourage countries to take their foot off the gas as they carry out the much needed austerity and reforms to improve competitiveness.

There were also positive comments out of the US with the White House and Republicans suggesting that talks have resumed to try and find an acceptable resolution to the fiscal cliff for both parties. This suggests that both are finally willing to negotiate after Treasury Secretary Tim Geithner made it perfectly clear that there would be no deal without the top 2% seeing their taxes raised. If comments from Obama this week are therefore true, that a deal could be done within a week once the tax hike is agreed, we could now see a deal well before the end of the year, although I remain pessimistic.

Looking ahead to today and there is plenty of economic data for traders to get their teeth into. However, it is the first Friday of the month which means the US jobs report will steal the show. Usually, other economic data is largely overlooked when the jobs report is due.

Today may be a rare occasion though when even the jobs report is overlooked. Regardless of how strong or weak the non-farm payroll and unemployment figures are, the fiscal cliff negotiations are the sole event that’s going to determine the strength of the US economy over the next couple of years.

In Europe this morning we do have a few pieces of economic data out starting with the UK manufacturing production figure for October. It is expected to show a 0.2% drop in the total value of output which given the performance of UK manufacturing in recent years isn’t going to come as a surprise.

The more concerning figure will be the German industrial output, which is expected to...

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[Alpari UK]

Craig Erlam talks about the jobs report this afternoon in the US, the Bundesbank's revised growth forecast for Germany, the ECB's revised growth forecast for the euro area and the recent troubles in Italy. Finally he takes a look at the eurodollar and cable charts.



Forex research: Global markets daily

[Alpari UK]

Italy at risk of moving backwards as Berlusconi runs for office

Today’s UK opening call provides an update on:

* Italy’s FTSE MIB expected to start the week lower as Monti calls it a day;
* Berlusconi announces plans to run for office;
* Chinese inflation data opens the door to further easing;
* Eurozone economic data expected to show moderate improvement.

Most European stock indices are expected to open higher this morning, while Italy’s FTSE MIB reflects concerns over Monti decision to resign at the end of the year.

The Italian stock index is expected to open lower by around 0.5% after Mario Monti announced his decision to resign once the 2013 budget has been passed in parliament. The decision means there will probably be an early election in February, which the markets are unlikely to respond positively to given that much of Italy’s new credibility is down to the work done by Monti’s technocrat government.

On top of this, Silvio Berlusconi’s decision to run for office has threatened to send Italy backwards. It was during his time in office that the country came to the brink of a full sovereign bailout that the other eurozone countries may not have been able to fund.

At this moment in time a Berlusconi victory looks very unlikely however we’ll still probably see the uncertainty reflected in rising Italian bond yields this morning. The yield on 10-year debt fell to around 4.5% last week, more than 3% lower than what they were when Berlusconi resigned only a year ago.

Other European markets are still expected to open higher though as data released over the weekend showed Chinese inflation rose to only 2% in November. This figure leaves plenty of room for further easing by both the new ruling party, who hinted at further accomodative policies recently, and the PBOC who’s recent monetary policy appears to have temporarily put an end to the slowing growth.

Chinese industrial output increased by 10.1% in November from a year earlier. This is the largest year on year increase we’ve seen in output since March, which suggests that the economy is beginning to grow at a faster pace again following seven quarters of slowing growth.

It is going to be a relatively slow start to the week, with very few pieces of economic data due to be released. This morning we have industrial production figures for October from the eurozone, which are expected to...

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[Alpari UK]

Craig Erlam talks about the decision by Mario Monti over the weekend to resign following the loss of support from the PDL. He then takes a look at the currency charts.



Forex research: Global markets daily

[Alpari UK]

Euro finance ministers meet to discuss Greek buyback

Today’s UK opening call provides an update on:

* European markets make small recovery following initial shock yesterday;
* Finance ministers meeting to discuss Greek buyback;
* US stocks higher yesterday on hopes of a deal on the fiscal cliff;
* Economic sentiment in Germany and the eurozone expected to show improvement.

European stock markets are expected to open higher this morning as the panic surrounding Mario Monti’s resignation begins to subside.
European shares made a small recovery yesterday following the initial shock from Mario Monti’s resignation. The losses were felt hardest in Italy with the FTSE MIB closing more than 2% down on the day, while yields on Italian debt also rose significantly. Spain also felt the pain of the decision with its own economy seen as heavily exposed to Italy’s, although it is much less exposed than it has been in the past.

The eurozone finance ministers are expected to have a brief conference call today to discuss the Greek buyback. Given that Greece was only looking to buy back another €3 – €4 billion of debt at a deep discount yesterday, in order to meet the conditions set by the IMF, the call should be very straightforward.

It also means that the next tranche of Greece’s bailout should be released at the EU summit at the end of the week, reducing fears of a Greek exit for now at least.

Over in the US, fiscal cliff talks finally appear to be progressing. While no details have been released regarding Obama’s meeting with Boehner on Sunday, the fact that they have finally met face to face suggests they are finally willing to negotiate. Both met again yesterday, prompting US stocks to trade higher on hopes of a deal before the deadline on 1 January.

It is expected to be another quiet day on the economic data front. The German ZEW economic sentiment figure is expected at around -11.4, which means that while analysts and institutional investors remain pessimistic about the next six months, they are less pessimistic than they have been since May this year. This is a move in the direction, however it is still a desperately poor figure from the eurozone’s strongest economy.

The euro is trading higher against the dollar this morning. The pair has currently found resistance around...

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[Alpari UK]

Craig Erlam talks about the fiscal cliff negotiations in the US, the reaction to Monti's resignation and today's eurogroup meeting. He then takes a look at the EUR/USD chart and highlights some key levels to look out for.



Forex research: Global markets daily

[Alpari UK]

EU finance ministers continue talks on banking supervisor

Today’s UK opening call provides an update on:

* Fiscal cliff negotiations continue to make progress;
* EU finance ministers meet to reach an agreement on a euro area banking supervisor;
* UK unemployment rate expected to edge higher to 7.9%;
* Fed expected to announce new asset purchases to replace Operation Twist.

European stock markets are expected to open higher this morning as gradual progress is made in fiscal cliff negotiations.

Barack Obama and John Boehner discussed the fiscal cliff for a third day yesterday, which has strongly suggested that both a finally ready to begin serious negotiations. Both still appear far from an agreement on areas such as entitlement spending and tax reforms, however the fact that we’re now getting offers and counter offers means there is progress being made.

Unless we see a breakdown in these talks, it suggests that a deal by year end is very likely now. However this is not likely to include a deal on raising the debt ceiling which will probably spill over into the start of next year. Irrespective of this, the talks are positive at the moment and as long as this continues, the stock market is likely to continue to rise, at least until year end.

EU finance ministers will meet again today to reopen discussions on how to create a banking supervisor for the euro area, with a number of issues currently standing in the way. The finance ministers failed to come to an agreement last week for a number of reasons, raising questions on whether that will change today.

If a framework is put in place today, which can then be discussed at the EU summit tomorrow, we should see a relatively positive reaction in the European markets, with the creation of a banking supervisor seen as the first step towards a banking union in the eurozone.

Unemployment in the UK is expected to have risen to 7.9% in October, only a slight increase on the month before, while the number of jobless claims in expected to have risen by 5,900. This is unlikely to have any impact on the markets as we’ve seen a significant improvement in both of these numbers in recent months so a small setback was always expected.

A lot of attention today is going to be on the Fed’s monthly meeting this afternoon. The Fed’s policies have driven market sentiment for a number of months now and they look likely to do the same again. Much of the rally over the summer was purely based on speculation of a third quantitative easing package from the Fed.

Operation Twist is due to expire this month which would reduce the long term asset purchases by the Fed by around $45 billion. Given the minor improvement in the economy since the Fed announced QE3, it is widely expected that...

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[Alpari UK]

Craig Erlam talks about the Fed meeting this evening, Operation Twist and the EU finance ministers meeting today. He then takes a look at the EURUSD chart.



Forex research: Global markets daily

[Alpari UK]

Finance ministers agree framework for single supervisory body

Today’s UK opening call provides an update on:

* ECB to oversee major European banks;
* European leaders meet on day one of the EU summit;
* Fed commits to additional $45 billion of Treasury Note purchases;
* Negotiations between Obama and Boehner stall.

Stock markets are expected to open relatively flat this morning despite progress being made at the EU finance ministers meeting over night.

Finance ministers came to an agreement for the ECB to become the single supervisory body for all major banks in the eurozone, while also having the power to intervene in smaller banks when necessary. The deal means that, as promised, we should have a roadmap in place by the end of the year as long as the finer details can be agreed at the EU summit today and tomorrow.

The one problem with this deal is that it was agreed in the early hours of the morning and appears a little rushed in order to meet the end of the year deadline. In the past this has meant that plenty of holes remain in the plan, which will be dealt with on another date. If this is the case we can only hope that this is dealt with at the EU summit because until I see the framework, I remain pessimistic.

There will be a number of items on the agenda at the EU summit this week, including setting up a road map for the single supervisory mechanism which will move the eurozone closer to becoming a banking union and deciding on whether to release Greece’s bailout payment following the completion of the debt buyback. They will also discuss a number of other ideas aimed at becoming more of an economic and monetary union.

The two day meeting of the Federal Reserve went largely as expected this week. The statement yesterday confirmed that Operation Twist, which expires at the end of this year, will be replaced with another $45 billion dollars per month of Treasury Note purchases. This will now add $85 billion per month to the Fed’s balance sheet.

One surprising aspect to the press conference which followed was the Fed’s commitment to keep interest rates close to 0%, until unemployment fell to 6.5% or inflation is projected to rise above 2.5%. The surprise here is not so much that it is linked to unemployment, because that was always assumed.

The surprising part comes from the fact that the target rate has been set, something that has not been done before. In the past, there has simply been a commitment to keep them low until a given date in the future.

Discussions over the fiscal cliff are ongoing between Barack Obama and John Boehner, although progress appears to be slowing. Boehner is believed to have stated that Obama is not committed to the balanced deal he speaks of in the press, making a deal very difficult.

This is clearly just tactics by Obama, looking to get the best deal for the Democrats, however it is going to reach a point when it will become counter productive. With businesses not hiring amid the uncertainty and consumers less likely to spend, a deal needs to be done as soon as possible, which means we need less games and more serious negotiations.

The euro is trading higher against the dollar this morning. The pair has broken above the descending trend line dating back to September’s highs and looks likely to...

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[Alpari UK]

Craig Erlam talks about the Federal Reserve statement and press conference last night and the EU summit today including the agreement on the ECB becoming the eurozone's single supervisory body. He then takes a look a the USDJPY chart after we saw a significant breakout yesterday.



Forex research: Global markets daily

[Alpari UK]

Stock markets boosted by strong Chinese manufacturing data

Today’s UK opening call provides an update on:
• Chinese manufacturing data improves for a fifth month;
• Boehner confirms that spending negotiations stalling fiscal cliff deal;
• EU summit continues as leaders work towards closer integration;
• Eurozone manufacturing and services data expected to show small improvement.

Stock markets are expected to open slightly higher this morning after Chinese manufacturing data showed further improvement in December.

The HSBC flash manufacturing PMI came out at 50.9, the highest figure since October 2011. It is also the fifth consecutive month that the figure has improved which suggests, along with other data, that the economy bottomed out back in the third quarter.

As always with Chinese manufacturing data, this is good news globally as well as domestically. A strong China will be key to driving the global recovery. It also suggests that external demand is improving which is consistent with data we've seen out of the US and the eurozone in recent months.

House of Representatives Speaker John Boehner confirmed what we already suspected last night. He claimed that the only thing standing in the way of a deal on the fiscal cliff is a disagreement on spending cuts. It is difficult to say at the moment whether Barack Obama is testing the resolve of the Republicans because he knows he still has time, or if he is genuinely negotiating much harder than is reasonable.

One thing that is becoming clear is that people in the markets are losing their patience with the negotiations and are beginning to prepare for the worst. Every day, more and more people appear to be coming round to the idea that a deal will be done in January at the earliest and we’re seeing this in the stock indices with the rally slowing dramatically. It’s only a matter of time until it starts to head in the other direction.

EU leaders are expected to meet again today to work towards closer integration. There has been concerns that...

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[Alpari UK]

Forex research: Global markets daily

[Alpari UK]

Stock markets flat as hopes of fiscal cliff deal begin to fade

Today's US opening call provides an update on:
• Fiscal cliff looms with congress not close to a deal;
• Shinzo Abe wins Japanese election;
• Quiet day in Europe with no major economic data releases.

Stock markets are expected to open relatively flat this morning as uncertainty over the fiscal cliff continues to grow.

Negotiations will continue this week between Barack Obama and John Boehner, with investors hoping for an acceptable compromise. Both are retaining a tough stance in the media, showing no signs of budging on the main issues including spending cuts on entitlements, tax hikes on the top 2% of earners and raising the debt ceiling.

This tough stance is paralysing the markets as investors become less and less convinced that a deal with be done. It seemed unthinkable a few weeks ago that the country would be allowed to go over the cliff but unless both parties soften their stance a little and actually negotiate, that is exactly what we'll see, with the stock markets falling off a cliff of their own.

Japan held its general election over the weekend, which as expected results in a win for the Liberal Democratic Party, led by Shinzo Abe. Japan has seen extremely low levels of growth in recent years and has a huge debt pile, however that hasn't deterred Abe who has promised large stimulus to boost the economy.

He is also expected to increase pressure on the Bank of Japan in a bid to force it to increase its stimulus program and cut interest rates. These efforts, as well as boosting the economy, should weaken the yen and therefore boost exports.

It is going to be a very quiet day in Europe, following what has been a very busy few weeks. There's no announcements expected today and no major economic data due to be released. Not that this would make much of a difference in the markets, with sentiment being dominated globally by concerns over the US fiscal cliff.

The euro is trading lower against the dollar this morning. The pair closed the week above 1.3150, the 38.2% retracement of the move from May 2011 highs to July 2012 lows, which is a very significant move as its the first time it has closed above here since April. This morning it is also finding support from 38.2 fib line which suggests...

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[Alpari UK]

Progress in fiscal cliff talks raise hopes of a deal by year end

Today's UK opening call provides an update on:
• Fiscal cliff talks take a huge step forward as Obama makes serious counter-offer;
• A deal before year end no longer unrealistic;
• UK inflation data opens the door to more QE in Q1.

European stock markets are expected to open higher this morning after fiscal cliff negotiations took a big step forwards.

Last night Barack Obama finally made his first serious counter-offer to the House Speaker John Boehner. Over the weekend, Boehner took the first step towards a deal, offering increased taxes for millionaires in exchange for cuts to entitlement spending. This appears to have finally got the ball rolling with neither party showing any willingness to negotiate up until this point.

There was still an element of caution in the markets following Boehner's offer as both parties have to be willing to negotiate for these talks to go anywhere. Now that we've seen this counter-offer from Obama, the chances of a deal by the end of the year appears to have increased significantly, hence the extremely positive reaction in the markets.

What's even more positive is that both Boehner's offer and Obama's counter-offer are not a million miles away. This suggests a deal could be done before year end, helping stock markets end the year on a high, while also saving the US from another humiliating credit rating downgrade.

The UK November CPI figure is due to be released this morning and is expected to show that inflation fell slightly to 2.6%. This is a slight improvement on last month, but...

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[Alpari UK]

Forex research: Global markets daily

[Alpari UK]

BoE minutes expected to close door on further stimulus in Q1

Today’s UK opening call provides an update on:
• German businesses expect conditions to improve next year;
• Eurozone current account figure expected to show rebound from surprise drop;
• MPC minutes expected to show little support for additional stimulus.

Stock markets are expected to open higher this morning as hopes of a deal on the fiscal cliff continue to grow.

There has been significant progress in talks so far this week, with Boehner making an offer that included tax hikes on the wealthy, while Obama made a counter-offer that included $1.22 trillion in spending cuts. The numbers being discussed by both parties are not too different any more making a deal by the end of the year highly probable all of a sudden.

The German Ifo figure this morning is expected to show that businesses are more optimistic about the first half of next year than they have been in recent months. While this is understandable given the progress that has been made in the euro area recently, the Bundesbank did claim that Germany could enter recession in Q1, which may push the figure lower than expected.

The eurozone current account figure will be more encouraging. The figure surprisingly dropped to €0.8 billion in September, which suggests that people were moving their money out of the region having anticipated further difficulties ahead. A figure around €5.8 billion in October would suggest that was a temporary blip, however another poor number would be concerning in an area that desperately needs an influx of spending and investment.

The MPC minutes will be released at 9.30 this morning, although we're not expecting any surprises here. A large number of members are believed to have been against any further asset purchases at this moment. With inflation creeping higher, the minutes are expected to show that policy makers believed the inflation risk was greater than the potential benefit of further asset purchases.

Not only that, but there is likely to have been a discussion on...

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[Alpari UK]

Craig Erlam talks about the Bank of England minutes, Greece's credit rating upgrade and the German Ifo Business Climate figure. He then takes a look at the cable chart where the pair is trading at a significant resistance level.



Forex research: Global markets daily

[Alpari UK]

Political sparring continues as hopes of fiscal cliff deal fade

Today's UK opening call provides an update on:
• Obama plans to veto Republican plan B;
• Bank of Japan increases its asset purchase program by ¥10 trillion;
• UK retail sales could receive boost from early Christmas shopping.

Stock markets are expected to open lower this morning, following the lead from across the pond as fiscal cliff talks stall.

Just as investors started to feel optimistic that a deal would be done by the end of the year, political sparring reared its ugly head once again with the Republicans this time on the offensive. John Boehner offered the White House a plan B in case a deal could not be agreed which would kick the can down the road once again on tax issues, while not addressing spending issues.

It's actually very clever by the Republicans as they have now publicly declared that a rejection of the "plan B" would mean the Democrats are responsible for the tax hikes which will impact all Americans, not just those earning over $1 million.

The problem with it though is it goes no way to resolving the issue and has little chance of being accepted, which means more time is being wasted when they only have 12 days to reach a deal. This is what's pushing the stock markets lower this morning, the focus on gathering political support as opposed to doing everything they can to avoid the fiscal cliff.

The Bank of Japan opted to increase the asset purchase program by ¥10 trillion this morning following its two day monthly meeting. The members claimed a high degree of uncertainty in the economy forced the decision, however there's nothing really uncertain about it.

Japan is in recession as growth continues to elude them, they have been caught in a deflationary spiral for years now and despite recent weakness, they have a strong currency that is hurting exports. The reaction in the markets was...

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[Alpari UK]

Craig Erlam talks about John Boehner's "Plan B", the BoJ press conference and this afternoon's key economic data releases. He then takes a look at the cable chart, with the pair trading at a very significant level.



Forex research: Global markets daily

[Alpari UK]

Fiscal cliff deal in doubt as Republicans reject “Plan B”

Today's UK opening call provides an update on:
• Republicans in the House reject "Plan B";
• Fiscal cliff deal in doubt with only a few days left to come to an agreement;
• No revision expected in UK third quarter GDP.

A deal to avoid the fiscal cliff was put in serious doubt last night when the Republicans cancelled a vote on "Plan B".

The vote which was supposed to take place yesterday was cancelled as there was not enough Republicans that were prepared to vote in favour of the bill. This is a huge concern as there is only 10 days to go until the deadline and the Republicans can't even agree on a bill written by their own party that didn't even get approval from Obama.

What chance is there then off Republicans in the House agreeing on a deal that meets Obama half way. The timing of this could also not be worse with members of Congress not due to meet again until after Christmas when they'll have only a few days to come to an agreement that has proven too difficult in the six weeks or so of negotiations so far.

The reaction we've already seen to this in stock market futures is likely to be minor compared to what we'll see over the course of the day. To an extent, a deal to avoid the cliff has been priced in, and this is the first time that a deal to avoid the fiscal cliff has looked less likely than going over it.

The final GDP figure due out of the UK later on this morning isn't likely to bring any surprises. It is expected to...

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