Trading news

Equity sell-off accelerates on Chinese concerns, US: Fed waits for more data

- Today September retail sales and PPI will be closely watched as the Federal Reserve still awaits more supportive data for a further rate hike
- In our opinion, the Fed has lost control of its monetary policy. When the fear of increasing rates, even minimally is so big, it is normal we start to question the Fed’s ability to accomplish its dual mandate
- We remain bearish on the sterling and expect further weakness, especially against the euro as the monetary union shows some slightly more encouraging data
- EUR/GBP is gaining positive momentum and currently testing the 0.7483 resistance level
 
Yesterday in Germany, the ZEW survey was a massive disappointment. The current situation index fell to 55.2 from 67.5, well below market expectations of 64. The ZEW expectation dropped to 1.9 from 12.1, also well below market expectations of 6.5 as the VW scandal and global growth concerns worsen the economic outlook. As a result, German shares spent most of the trading session under pressure - the DAX fell 0.86%. EUR/USD had a choppy session but was unable to choose a direction as news from the other side of the Atlantic failed to provide support to the greenback. US Fed Governor Tarullo said yesterday that he does not expect a rate hike before the end of the year and added that the Fed should wait for “tangible evidence” of a pick-up in inflation before considering raising rates.
 
***Yann Quelenn, Market Analyst: “The Federal Reserve are still awaiting more supportive data for a further rate hike. Today’s data, September retail sales and PPI will be closely watched. Consumption is expected to increase by 0.2%, while the production index should decline by 0.2%. These figures will be essential to predict inflation - the key factor for a rate hike. Last month, data was disappointing, but upward revisions still leave some room for further improvement.
 
However, it seems that a rate hike for this year is no longer on the cards. Daniel Tarullo, a Fed member declared that raising rates in 2015 was “not appropriate”. He is not the only Fed member to make this affirmation. Lael Brainard is also waiting for more supportive data. Wait-and-hope is the Fed’s new mantra. Even if Fed Governor Yellen keeps hoping (and saying!) that a rate hike in 2015 is still possible, she is also waiting for more supportive data. The only difference is that Yellen should also admit that a rate hike won’t happen this year. We just hope that she won’t wait until the last meeting in December to disclose this.
 
In our opinion, the Fed has lost control of its monetary policy. When the fear of increasing rates by a quarter point is so great, it is absolutely normal that we begin to question the Fed’s ability to accomplish its dual mandate: promoting dual employment and stabilizing prices. Unemployment remains stable however, there are growing concerns that the current data overlooks long-term unemployment. Concerning prices, the Fed through its 3 QE has failed to create the environment – decent inflation – that would lead to more growth.”***
 
The pound sterling suffered another sell-off yesterday and moved back below zero. Headline inflation printed at -0.1%y/y, below the median forecast and previous reading of 0.00%. Core inflation also surprised to the downside as it remained stable at 1%y/y in the month of September. GBP/USD dropped more than 1% to 1.5230 after the release. The cable remained in its declining channel and is getting closer to the support standing at 1.5108. We remain bearish on the pound sterling and expect further weakness, especially against the euro as the monetary union shows slightly more encouraging data. EUR/GBP is gaining positive momentum and is currently testing the 0.7483 resistance level implied by the high from May 7th).
 
In Australia, the better-than-expected Westpac Consumer index - printing at 4.2%m/m (s.a.) versus -5.6% in September - offered some respite to the AUD, which has fallen as much as 2.50% over the past 2 days against the US dollar. The Aussie is now taking a breather around $0.72.
 
In Asia this morning, the sell-off accelerates amid a disappointing inflation report from China. Headline CPI indicated that consumer prices rose 1.6%y/y in September, while economists were anticipating a reading of 1.8%. Meanwhile, producer prices dropped -5.9%y/y, matching expectations and previous reading. Japanese equities were pairing the biggest losses with the Nikkei and the Topix index down -1.89% and -2.15%, respectively. In the rest of Asia, the sell-off was less extreme with the Hang Seng sliding -0.59%, the S&P/ASX -0.11% and the Kospi index -0.47%. The negative mood is already spreading to European markets as futures are all turning red. Footsie is down -0.84%, DAX -0.69%, SMI -0.76%, while the European gauge, the Euro Stroxx 600 falls -0.70%.
 
Today traders will be watching inflation reports from Spain and Italy; the job report from the UK; industrial production from the euro zone; retail sales from Brazil and the US; PPI from the US.

Wednesday, 14 Oct, 2015 / 8:34

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Source : http://en.swissquote.com/fx/news-and-live-signals/daily-forex-analysis/2015/10/14

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