SAB Miller and AB Inbev M&A talk keeps the bid in the pound

2015-09-16 00:00 Belgian drinks company looks to make an approach for UK SAB MillerThe pound strength is being aided by talk just out that Belgian brewer AB Inbev is going to bid for SAB MillerThere's no number being officially touted around and talk of AB's interest has been known since earlier in the yearAs such EURGBP has remained under pressure since the news, dropping to 0.7280Trading in AB shares have been halted in Brussels as I typeThe thing with M&A news is that it moves a market on the expected deal outcome although no one ever usually knows when the actual cash (FX) part of the deal goes throughThe FT reports that the deal could be worth around $245bn            

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BOE MPC hawks stepping up to testify to UK lawmakers

2015-09-16 00:00 As I highlighted/warned in my earlier post we have an appearance by Carney & Co in front of the parliamentary Treasury Select CommitteeGov Carney will be joined by Karen Forbes, Ian McCafferty and Ian Weale all three of whom are known to have hawkish tendencies and this morning's jobs/wages release will be music to their ears.  They will be keen to crow in front of their interrogators.Expect some hard questions though from the TSC and some caution from Carney who invariably plays a dead-pan hand, especially on the topic of GBP strength and its impact on inflationTalking of which yesterday's softer reading will also take centre stage in the discussions that revolve around the August BOE inflation report and begin at 13.15 GMT. That will help to temper the mood before everyone gets too carried awayFollow it live here

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Forex Afternoon Wrap – 14/09

Markets trading mixed on a quiet start to an important week

Today’s Economic Data:

• Japan revised industrial production m/m -0.8% vs. -0.6%
• Japan tertiary industry activity m/m 0.2% vs. 0.2%
• Switzerland PPI m/m -0.7% vs. -0.4%
• Switzerland retail sales y/y -0.1% vs. 1.5%
• Eurozone industrial production m/m 0.6% vs. 0.3%

The currency markets opened today on a cautious note ahead of what could be a very important week for the markets in nearly a decade as the US Federal Reserve decides whether its time to hike interest rates or not. Over the weekend, China’s industrial production increased 6.1%, below estimates of 6.3%, but softly stronger than 6% growth previously. Fixed asset investment on a year to date basis fell 10.9% against estimates of 11.2% while retail sales posted soft growth at 10.8%. The Asian markets were trading week earlier in the day but settled with the Hang Seng index posting a modest gain of 0.27%, while the Nikkei 225 and the Shanghai index fell -1.63% and -2.67% respectively.

The commodity risk currencies, Aussie and the Kiwi dollars were trading stronger since the start, with the currencies gaining 0.46% and 0.18% respectively. The Canadian dollar followed closely rising 0.03% for the day at the time of writing. There was not much of data from Asian session with the exception from Japan. Industrial production fell more than expected by -0.8% while the tertiary industry activity was steady at 0.2%. The Yen was firm in today’s trading across the board ahead of the Bank of Japan monetary policy meeting due later this week. While no change is expected, recent narrative from various officials from Japan calling for the Central Bank to expand its QQE program has brought upon some uncertainty in the markets in regards to the BoJ’s meeting this September.

USDJPY was down 0.2% after briefly testing the session highs of 120.81 early in the day.

The European trading session was quiet with the equity markets opening higher despite the risks of the rate hikes from the US. The German DAX was up 0.17% while the FTSE100 was up 0.21%. The Euro, which initially surged early in the day gave up its gains after testing highs of 1.135 to trade -0.12% lower at 1.1322 at the time of writing. Eurozone industrial production was stronger, rising 0.6%, beating estimates of 0.3%.

The Swiss data released today showed the producer price index decline -0.7% for the month at a faster pace. Retail sales were also weaker for the month, falling -0.1% below estimates of 1.5%. The Swiss Franc was weaker as the USDCHF gained 0.21%, recovering some of the losses since Friday, but trading was mostly choppy early on.

There were no major releases from the UK. The British Pound initially posted session highs above 1.546 before giving back its gains. Over the weekend, BoE member Martin Weale said that rates in the UK need to rise relatively soon. Martin Weale joins other hawks in the BoE’s MPC such as Ian McCafferty and Kristin Forbes and it is likely that upcoming BoE meetings could see more MPC members voting for a rate hike. The Cable was however seen to be consolidating ahead of the main FOMC event this week.

The US trading is also expected to be a quiet one with no major data releases scheduled for today. The US futures markets were however pointing to a positive open with the Dow, S&P and the NASDAQ futures all gaining ahead of the market open.

The metals market was trading mixed with Gold posting soft gains rising 0.11% for the day but Silver futures were down 0.72%. Copper was down -1.3% for the day. Crude oil prices were also weaker in today’s trading with WTI Crude Oil trading at 44.58 while Brent was down -0.77% trading at 47.77.

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Policy Rates Minutes Around The World

 

At the middle of this week Canada announced its decision over maintaining the overnight rate at the 0.5% level, as was to be expected. The economic policy rate remained 0.75% and the deposit rate 0.25%. As for the inflation, BoC declared that the preferred gauge – the CPI (Consumer’s Price Index) remained once again at the bottom of the targeted range, outlooks remaining favorable. In the press release there were also stated the main reasons for this continuity in the low-prices trend, which in a concise matter can be represented by the uncertain grow prospects for China’s economy as well as other emergent markets. Although the overall risks, BoC declared itself satisfied with the current state of Canada’s economic path.

In New Zeeland, the Reserve Bank announced yesterday a reduction of the OCR (Official Cash Rate), trimming it with 25 basis points to the level of 3.0% and also making annotations about a probable future cut down. The explanation for the present decision rests in the targeted CPI, which needs to keep the inflation in the 2% area. If the measure seems insufficient, further cuts will take place depending on the state of the economy.

Right next door, the Aussie gets hit by the new job report about Australia’s situation. The unemployment came out much over expectations, reading 17.4K – forecasts talked about 5K. Sentiment is the other way around when speaking about the unemployment rate: it reads 6.2%, under last month’s 6.3%, surprising most economic actors, which expected a much higher level; this took off a bit a pressure from the Aussie. When this news was released, it was also published the Shanghai Composite Index – opening lower with 1.9%, the Hang Seng Index – opening lower with 2.2%, and Nikkei – opening 3.7% lower. In the same time AUD/USD spiked above 0.70 level and this one was due to China CPI Y/Y 2.0% vs 1.8%, 0.5% M/M vs 0.4%.

BoE’s (Bank of England) stand regarding a rate hike is unchanged according to the last minutes published, the only one in favor being, as expected, Ian McCafferty. The minutes also brought forward the uncertainty of BoE regarding what impact the strong GPB can have over inflation. Regardless about these worries, prospects for the British economy remain positive according to policymakers. The recent black stain of China’s economic contraction has not altered their ambition of a rate hike knocking strolling slowly but decisively.

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Weekly Forex Forecast: 14 – 18 September 2015

The Aussie closed the week with strong gains of over 2.6% closed followed by the Euro and the British Pound each of which closed with 1.73% and 1.72% respectively. The US Dollar was trading soft for most of last week with lack of any major market impacting data. On Friday, the US Producer price index managed to rise above estimates giving a boost to inflation expectations. However, the University of Michigan consumer sentiment declined sharply leading to the US Dollar to close on a soft note.

Weekly Spot FX Performance – 11/09/2015 (Source: Finviz.com)

The Japanese Yen was the weakest performing currency last week as the modest risk-on sentiment saw investors selling the safe haven currency for the more risky assets. The US Dollar was also obviously weaker for the week. The Kiwi dollar which saw a sharp decline managed to close the week with moderate gains of 0.58%.

Fundamentals for the Week 14/09 – 18/09

Date	Time	Currency	Detail	Forecast	Previous
14-Sep	07:30	JPY	Revised Industrial Production m/m	-0.60%	-0.60%
		JPY	Tertiary Industry Activity m/m	0.20%	0.30%
	10:15	CHF	PPI m/m	-0.40%	-0.30%
		CHF	Retail Sales y/y	1.50%	-0.90%
	12:00	EUR	Industrial Production m/m	0.30%	-0.40%
15-Sep	04:30	AUD	Monetary Policy Meeting Minutes
		AUD	New Motor Vehicle Sales m/m		-1.30%
	Tentative	JPY	Monetary Policy Statement
	Tentative	JPY	BOJ Press Conference
	09:45	EUR	French CPI m/m	0.40%	-0.40%
	11:30	GBP	CPI y/y	0.00%	0.10%
		GBP	PPI Input m/m	-2.20%	-0.90%
		GBP	RPI y/y	0.90%	1.00%
		GBP	Core CPI y/y	1.00%	1.20%
		GBP	HPI y/y	6.20%	5.70%
		GBP	PPI Output m/m	-0.20%	-0.10%
	12:00	EUR	German ZEW Economic Sentiment	18.3	25
		EUR	ZEW Economic Sentiment	42.1	47.6
		EUR	Employment Change q/q	0.10%	0.10%
		EUR	Trade Balance	21.4B	21.9B
	15:30	USD	Core Retail Sales m/m	0.10%	0.40%
		USD	Retail Sales m/m	0.40%	0.60%
		USD	Empire State Manufacturing Index	0.7	-14.9
	16:15	USD	Capacity Utilization Rate	77.90%	78.00%
		USD	Industrial Production m/m	-0.10%	0.60%
	16:30	GBP	CB Leading Index m/m		-0.20%
	17:00	USD	Business Inventories m/m	-0.20%	0.80%
	Tentative	NZD	GDT Price Index		10.90%
16-Sep	01:45	NZD	Current Account	-1.51B	0.66B
	02:30	AUD	RBA Assist Gov Debelle Speaks
	03:30	AUD	MI Leading Index m/m		0.00%
	08:00	JPY	BOJ Monthly Report
	11:30	GBP	Average Earnings Index 3m/y	2.50%	2.40%
		GBP	Claimant Count Change	-5.1K	-4.9K
		GBP	Unemployment Rate	5.60%	5.60%
	12:00	CHF	ZEW Economic Expectations		5.9
		EUR	Final CPI y/y	0.20%	0.20%
		EUR	Final Core CPI y/y	1.00%	1.00%
	15:30	CAD	Manufacturing Sales m/m		1.20%
		CAD	Foreign Securities Purchases		8.51B
		USD	CPI m/m	-0.10%	0.10%
		USD	Core CPI m/m	0.10%	0.10%
	17:00	USD	NAHB Housing Market Index	61	61
	17:30	USD	Crude Oil Inventories		2.6M
17-Sep	01:45	NZD	GDP q/q	0.60%	0.20%
	02:50	JPY	Trade Balance	-0.35T	-0.37T
	04:30	AUD	RBA Bulletin
	08:45	CHF	SECO Economic Forecasts
	09:35	JPY	BOJ Gov Kuroda Speaks
	10:30	CHF	Libor Rate	-0.75%	-0.75%
		CHF	SNB Monetary Policy Assessment
	11:00	EUR	ECB Economic Bulletin
		EUR	Italian Trade Balance	2.47B	2.81B
	11:30	GBP	Retail Sales m/m	0.20%	0.10%
	15:30	USD	Building Permits	1.15M	1.13M
		USD	Unemployment Claims	276K	275K
		USD	Current Account	-111B	-113B
		USD	Housing Starts	1.16M	1.21M
	17:00	USD	Philly Fed Manufacturing Index	6.1	8.3
	17:30	USD	Natural Gas Storage		68B
	21:00	USD	FOMC Economic Projections
		USD	FOMC Statement
		USD	Federal Funds Rate	<0.50%	<0.25%
	21:30	USD	FOMC Press Conference
18-Sep	02:05	GBP	BOE Quarterly Bulletin
	02:30	AUD	RBA Gov Stevens Speaks
	02:50	JPY	Monetary Policy Meeting Minutes
	11:00	EUR	Current Account	21.3B	25.4B
	15:30	CAD	Core CPI m/m		0.00%
		CAD	CPI m/m		0.10%
	17:00	USD	CB Leading Index m/m	0.20%	-0.20%

Currencies/Events to Watch this Week

RBA Monetary Policy meeting minutes: The week ahead is a quiet one for the Aussie dollar as far as economic data is concerned. Tuesday, 15th September will see the release of the RBA’s monetary policy meeting minutes. It is most likely expected to remain a non-event given that the Australian Central Bank did not make changes to the monetary policy and also struck a largely neutral tone in the markets.

Canada Manufacturing and CPI: The monthly manufacturing sales and inflation numbers are due from Canada this week. With the BoC staying put on interest rates at its meeting last week, the focus will be on the monthly consumer inflation data which has remained unchanged at 0.00% on the core and 0.1% on the headline. A drop in the monthly consumer inflation is likely to bring back the speculation of a BoC rate cut at its next meeting in October.

SNB Meeting: Besides the Producer Price index data and the retail sales, the Swiss National bank will be meeting on 17th September. No changes are expected to the SNB Libor rate and the focus will more likely remain with the SNB’s currency interventions, especially in light of the Fed’s possible rate hike decision due later in the evening which could see the Swiss Franc being bid up in the process

Eurozone Inflation: The week ahead is quiet for the Euro with only the Eurozone annualized CPI data due for release. Expectations are for the CPI to remain unchanged from the previous month at 0.2% on the headline and 0.1% on the core. However, considering how the GDP data surprised last week, a possible beat on the CPI estimates cannot be ruled out.

UK Inflation and Jobs: Tuesday will see the release of the annualized CPI data from the UK. Expectations are for consumer inflation prices to have declined modestly with the headline CPI expected to stay flat at 0.0% while the Core CPI is expected to have fallen to 1.0% from 1.2% previously. Also this week will be the monthly jobs report. No change is expected to the unemployment rate which stands at 5.6% but the average hourly earnings is expected to rise softly to 2.5% from 2.4% last month.

BoJ Press Conference: The Bank of Japan is due to meet on 15th September. In the past week some officials from Japan voiced opinion that the BoJ should expand its QQE program. Given that the BoJ meets just a few days ahead of the Fed’s interest rate decision, it would be a close call. A possible easing in the QQE could indirectly signal that the Fed could skip hiking rates at this month’s meeting. Expect the Yen to stay volatile.

New Zealand Quarterly GDP: After the RBNZ cut rates by 25bps last week citing a slowdown in the economy, the quarterly GDP data is due for release. Expectations are on the hawkish side with the possibility that the New Zealand GDP expanded strongly at a pace of 0.6%, from 0.2% previously. The Global dairy trade index data is also due which has managed to post positive number in past two auctions. However, dairy prices have declined by over -15% this year and a continued positive data is needed to bring the conviction that the dairy prices might have bottomed out.

US CPI, Retail Sales, Fed decision: It will be a busy week for the US Dollar, starting with the retail sales numbers due on Tuesday followed by the Consumer inflation prices for the month. Friday’s PPI showed some hope as producer prices managed to rise above estimates. A positive print on the CPI could possibly shift the scales for the Fed’s interest rate decision. All eyes however will be tuned to the Fed on Thursday which is due to decide on whether to hike rates or not along with releasing the staff economic projections.

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China’s Economy Is Struggling

Latest results show that the US wholesale prices, which are gauged through the PPI (Producer Price Index), are not different in August than in July even though fuel prices followed the trend of the crude and dropped significantly. The PPI level remained at +0.2% in August although investors were expecting a 0.1% reduction. A look at the PPI components shows that the food prices rose with 0.3%, the energy expenses gave up 3.3% and gasoline went down 7.7% – biggest downfall since January. Core PPI (representing the PPI minus food and energy prices) went up 0.3%, exceeding the expected 0.1% forecast. The August CPI (Consumer Price Index) will be released Wednesday, forecasts being towards a slight decline for the month of August.

Taking a look at the GBP/USD pair, we can see that the spot continues to linger around the 1.5430 threshold, even though consumer sentiment weakened in the last period in the US. The margin of the interval in which the trend is moving back and forth is 1.5409 (April-June, 38.2% of the rally) and 1.5460 (July, 61.8% if the rally). Due to the fact that the trading interest seems to have crumbled towards the end of last week, the pair has failed to respond to the feeble data. When referring to the consumer sentiment, it was considered the MCI (Michigan Confidence Index) for August, which has dropped from July’s 91.9 to 85.7 in August.

China’s economy continues the downward slope, recent information showing that the fixed-assets investments have risen in August with the slowest pace in 15 years. Industrial production also came in weaker than estimated, the National Bureau of Statistics stating that the CIP (Chinese Production Index) rose only with 0.1%, to 6.1% in August from 6.0% in July; expectations were of 6.4%. These fact raise further questions over the effectiveness of the government’s efforts to resuscitate the economy.

Taking a look at the commodities we can see that Gold continued its loosing spree, opening with $1,098/Oz in the morning, even though US stocks took a hit early in Friday’s session. Once again we can see the lack of response from the yellow metal regarding risk aversion in US’s equity markets. There may be the possibility that investors are more focused on a possible rate hike this week. At the end of the session the metal tested the $1,100/Oz area. Crude also registered a 2.5% loss on Friday, closing at $44.77. Goldman Sachs (the influential US bank) has lowered its forecasts for 2016 from $57/barrel at $45/barrel, declaring that the supply gulp will most certainly persist in 2016 as well.

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Gold 2015-09-14

XAUUSD
1106

Still confirming our breakout

Market is going to lower levels as it is trading below 1125s, at the levels of 1180s/1190s the market would face a major support levels, which will be the real test of the market sentiment.

We are putting more probability on the downside move, to test the mentioned support levels as the market still below 1125s.

We are on neutral mode , and that driven by the uncertainty at the market on this week which is cause by the Fed coming meeting.

On the Mid-Term:
On the mid-term we still see the market on weekly time frame trading on a declining channel, after reaching the bottom of that channel (1117s levels) the market rebounded, so, we do see the price of 1200s as the mid-term target as long as the yellow metal trading within the mentioned channel which would you see it in our previous reports.

On the long-Term:
The longer-view for gold still confuse everyone , a lot see more prices below 1000s per-ounce , and major parties see a prices back toward 1500s per ounce. However , we would prefer the lower prices expectation , as we see the major support on the long-term view at 950 dollar per ounce as long as the market still trading below 1330s levels .

Daily Trend: Down
Weekly Trend: Down

	Support	Resistence
Level 1	1102	1114
Level 2	1097	1125
Level 3	1085	1138

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