Mark Carney's Forward Guidance Sees FTSE 100 Fall Back

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Stock Market Trading

: 09 August 2013

European equities are set to creep higher as moderate Chinese inflation data adds weight to the argument that the world's second largest economy is on the mend.

Following yesterday's upbeat trade data, evidence is growing that the Chinese government's attempt to 'fine-tune' economic policy to foster a stable recovery may be working.

However, despite today's positive start, it seems likely that the major indices will register a loss for the week as the overhanging threat of Fed tapering keeps the bulls firmly reigned in.

With little on the economic calendar of note today, and the summer holiday season in full swing, it's unlikely that there will be anything else to fuel gains.

US equities bucked a three day trend on Thursday, with the Dow Jones adding 30 points to close at 15,500, as positive initial jobless claims and strong Chinese trade data gave investors some light relief.

Jobless claims are now at their lowest level since before the recession and this is just one of a number of indicators that the situation in the US is improving.

Also, about 75% of US companies have beaten analyst's expectations during the latest earnings season.

Stock Market Trading

: 08 August 2013

European stocks are set for a modest bounce on the open as they recover some of yesterday's losses, but fears of a bigger sell off are brewing.

Even with the positive open, markets seem to have picked up the bearish slant as central bankers pour cold water on the bulls.

Despite his best efforts and huge expectations from markets and consumers, Mark Carney lost a lot of his initial credibility yesterday as his attempt at forward guidance bounced back in his face.

His pledge that that the base rate will be on hold until unemployment gets down to 7%, which at current BoE projections would mean another 3 years, received a thumbs down from traders.

The consensus opinion is that the pick up in the UK economy will make a 7% unemployment rate easily achievable well before the dubious BoE projections suggest.

In fact, markets have actually brought their expectations of a rate hike forward, marked by the surge in the pound, the sell off in short sterling futures and the fall in the FTSE.

In addition, many seem to think that Carney's inflation caveat pretty much ruled out any hope of keeping interest rates low as planned.

Adding to the bearish overtones, the Fed's previously dovish Pianalto leaned towards the hawkish side in yesterday's statement.

With the Fed's apparent bias towards monetary tightening, whether intended or not, the bulls are struggling to find any appetite to take markets higher.

For the third day in a row, US stocks retreated in what is looking to be the start of a short-term trend.

However, we have only seen a 1% retreat thus far, meaning that the Fed may simply be giving investors an excuse to take some profits.

The Dow Jones had fallen by 100 points at one stage but it managed to recover to close just 50 points lower at 15,470.

We are now seeing strong gains across the board in this morning's futures trading.

Stock Market Trading

: 07 August 2013

European equities are set to open lower as good news becomes bad once again and the taper looks to be a step closer.

Good economic data stateside and some surprisingly hawkish words from expected Fed dove Evans, who suggested that the economy could sustain tapering, have traders concerned about a sudden withdrawal of the Fed's bond purchases.

As a result, the Dow Jones extended its losses into a second day, closing 94 points lower at 15520, after a positive run on strong earnings and positive economic data.

Despite some dovishness from the ECBs Praet, suggesting that they could possibly lower rates, and the expected dovishness from Carney today, the threat of Fed tapering seems to be overshadowing any positive cues closer to home.

Later today we see the Fed's Plosser speak, a known hawk who has continually called for a September taper, so there are unlikely to be any surprises about what he will say.

However, it is the words from dove Pianalto later on that could really stir sentiment today.

If another dove adopts a hawkish tone, with markets currently seeing tapering outweighing positive economic strength, we could see some sharp moves lower.

In the UK, markets and consumers are eagerly awaiting details of Carney's unconventional forward guidance on interest rates.

Expectations are that low interest rates will be in place for either a set time or until a certain economic benchmark is reached.

The issue that could scupper Carney's efforts is if the time period is too short, say less than 2 years, or that the economic benchmark is too attainable, such as a marginally lower unemployment rate.

Assuming Carney hits the right spot, we could still see some weakness in equities as the overhang from the Fed's tapering dwarfs even domestic bullishness.

Stock Market Trading

: 06 August 2013

Stronger than expected growth in the US service industry provided the spark for a risk-off day in equity markets.

In addition, the Fed's Fisher gave the 'taper on or off' argument an extra nudge towards it happening sooner rather than later.

Although this wasn't anything new or unexpected from a known hawk, stock markets have reacted negatively and started the week on a downer.

The Dow Jones saw a 45 point decrease to finish trading at 15,612.

Overnight, Asian markets have continued with the negative sentiment which looks to be marginally pulling European indices down on the open.

However, another day of good economic data is expected from Europe and there is the potential for global bullishness coming from a speech by the Fed's Evans, a known dove.

He has previously suggested that tapering should be data dependant so the weak jobs data on Friday has led markets to expect an extension to the timetable.

Despite recent gains, markets have drifted back into their ranges as traders wait for that decisive cue for the next leg, in either direction.

Generally, equity markets are fairly directionless at the moment, and daily moves will not necessarily reflect fair value, with the low volumes of the summer in full swing.

Stock Market Trading

: 05 August 2013

European shares are set to open flat as last week's conflicting US data keeps the September taper 'on or off' debate raging.

The added uncertainty from the disappointing jobs figure will further cloud the Fed's thinking on monetary policy, so this week's four Fed speakers will be eagerly watched to try and garner some clarity.

Closer to home, the picture for the UK economy is set to get another few jolts of bullishness, with services and manufacturing data set to improve, but the real catalyst will be Carney's expected pledge to long-term low interest rates.

Interestingly, with the domestic picture for the UK picking up, our spread betting account holders are happy to be long of the FTSE 250.

However, with the uncertainty on the global macro scene, many of the same clients are taking a short view on the internationally focussed FTSE 100, which has lagged its broader sibling by almost 50%.

Friday's worse-than-expected Non-Farm Payroll number initially upset the stock markets.

The case regarding QE seems to be a lot clearer now, meaning that poor data is once again proving detrimental, rather than strong data evoking tapering fears.

Nevertheless, the early losses were eradicated during the evening session and the Dow Jones ended at yet another all-time high, closing 30 points higher at 15,658.

Stock Market Trading

: 02 August 2013

It seems that further quantitative easing from the BoE and non-standard measures from the ECB have been put on the back burner for now.

However, markets seem quite content with the prospect of long-term low interest rates and improving economic signals, as signified by yesterday's global run of good manufacturing surveys.

Today's focus is naturally the Non-Farm Payrolls report and unemployment rate from the US.

Optimism seems to be swelling as traders gear up for what they hope will be the fourth time in a row where the figure comes in better-than-expected.

Although a pick up in the economic data would suggest a higher probability of the Fed tapering in September, it looks as though traders and markets have come to terms with it at last.

Some would even argue that we are now beyond the point where economic stimulus is needed and can instead revert back to normality where economic strength is a good thing.

The US economic data continued to point to a better outlook, with unemployment claims and manufacturing PMI both surpassing expectations.

Coming after an FOMC meeting where monetary stimulus remained on the table, this triggered another sharp rally in equities, with the Dow Jones soaring to a new record of 15,628, a 90 point gain for the day.

One might ask how high it could go if today's Non-Farm Payrolls is another pleasant surprise.

Stock Market Trading

: 01 August 2013

Modest gains are expected at the European open as Asian markets saw some overnight strength, however, the upcoming central bank meetings are likely to keep gains capped for now.

Asian markets perked up after the Official Chinese Manufacturing PMI beat expectations, with investors shrugging off the contradictory HSBC figure.

In the US, the Dow Jones initially moved higher following a GDP report which showed a bigger than expected rise of 1.7% for the second quarter.

However, the index pared its gains soon after that, ending 7.5 points down at 15,532.5 as the much awaited FOMC meeting failed to provide any indication about the timing of tapering.

In addition, Fed Chairman Ben Bernanke seemed slightly concerned about the persistently low levels of inflation.

This morning, traders aren't anticipating any more surprises from the BoE and ECB following last month's double whammy of unexpected nods toward forward guidance.

With both the UK and Europe seeing some bright spots of economic data, markets are fairly confident that there will be no change in policy from either institution.

Nevertheless, it will be interesting to see whether the markets take this inaction as a sign of economic recovery or whether they focus on the fact that stimulative measures now seem to be out of fashion.

Stock Market Trading

: 31 July 2013

With a barrage of data and central bank announcements about to get underway, we are expecting a flat start as investors wait tentatively on the sidelines.

The difficulty will be trying to work out the net impact of each little morsel of data as there's always something bigger, badder and more influential coming out later on.

I have no doubt that the short-term day traders will be all over each and every release, but the macro theme that is still dominating market sentiment is the Fed's tapering.

Although the FOMC statement will be released after the European close, some investors will try to use this afternoon's big US releases, which include ADP and GDP, as a hint towards the tapering timetable.

US corporate earnings may have continued to top estimates, but they offered little incentive to investors for another convincing move higher.

Instead, an early rise for the Dow Jones was followed by a drop in afternoon trading and the stock market index ended just 8 points up at 15,546.

Stock Market Trading

: 30 July 2013

European equities are set to open higher, although this has more to do with short-term reversion trades rather than overt bullishness, the main indices continue to be stuck in a range.

Yesterdays mixed close for Europe, a weaker US but a higher Asia overnight shows the skittishness around the markets at the moment.

Markets continue to trade thinly and choppily as traders position themselves ahead of key event risks which many believe will propel markets on their next leg, in either direction.

All attention remains firmly fixed on the economic data and the central banks this week. However the stock markets are still getting battered about intraday as traders struggle to make up their minds about what they want to hold, or not, going into the releases.

The Dow Jones started the week on the back foot as the number of pending home sales slipped last month. It was interpreted as a sign that rising mortgage rates have started to negatively impact the housing sector.

Nonetheless, US equities rebounded towards the close, ending just 7.5 points in the red at 15,540 after investors weighed the fact that the initial predictions were even worse.

Stock Market Trading

: 29 July 2013

European equities are set to cautiously edge higher on the open ahead of a decisive week.

With August almost upon us, it's now only a matter of weeks until the Fed is speculated to begin tapering their bond purchases.

Although the 'net' consensus is that they'll begin tapering in September, there is quite a lot of vehement debate going on between the hawkish/dovish camps.

Online spread betting markets have decided to tread carefully, which explains why we have seen some erratic movement whilst perched on their short-term highs.

With Bernanke still stating that tapering in September is 'not a sure' thing, this week's raft of heavy hitting US economic data, which includes the NFP, GDP and an FOMC statement, could trigger some volatility.

Not to be outdone, Europe will see both ECB and BoE meetings where the vein of dovish forward guidance is expected to continue.

As central banks on both sides of the Atlantic are scheduled to meet later this week, investors did not want to go into the weekend too exposed.

Thus, despite a drop into negative territory for much of Friday's session, the trend suddenly changed its direction towards the close, with the Dow ending nearly unchanged at 15,554.

Overall, traders are likely to continue with their cautious approach, weighing corporate earnings against the latest economic data.

By Jonathan Sudaria, 9 August 2013

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