Good Morning Folks!
Asian stocks finally managed to post some gains overnight as markets look set for a more positive session after a week that has seen equity markets retreat from their all-time highs. The positive performance seen was helped by strong import and export numbers out of China and solid unemployment readings out of Australia. Stocks gained in Asia apart from Japan where the Nikkei suffered a moderate fall. Today’s session is still likely to be dominated by the talk of earnings season in the US, however with the busiest day of the week on the economic calendar in front of us there will be no lack of news flow for traders to get their teeth stuck into.
The UK will be a major focus today as we get the BOE interest rate decision. Of course expectations are for no change at today’s meeting, but recent rumours of a rate hike in the second half of 2014 have been gathering pace of late. If we are to get no change in policy today, which is as expected then the vote counts at the meeting minutes will take on added importance. Talks of a rate hike in the next couple of months may have been gathering pace, but currently the voting remains stuck at a solid 0-0-9 in favour of leaving fiscal policy unchanged. For the potential rate hike to be taken seriously we will have to start seeing a change in this voting pattern with at least a couple of MPC members voting for a change. As mentioned already a number of times this week, the equity market gains we have seen are based of very weak foundations, being built during a time of low volatility and even lower volume. So it could well be the case that we don’t need a rate hike to spook the markets and that a couple of committee members changing their vote will be enough to see the markets plummet.
Last night saw the release of the Fed meeting minutes and it was announced that Janet Yellen and the Fed have been contemplating a full exit from the asset purchasing plan that has been in place. The minutes showed that the Fed plan to end the asset purchasing plan in October and have also come up with a plan to manage the increase of interest rates. Interestingly the minutes mentioned that the members were concerned that the recent low volatility in financial markets showed that investors were not factoring in a more hawkish approach from central banks. This clearly shows that the Fed are also worried about the weak foundations the equity market rally is based on and that the gains could unravel at lightning speed if something was to catch them of guard. It seems there is an overall complacency from traders and investors at the moment and that no one will take heed of the warnings until markets finally do show this is a serious matter by posting huge declines.
Overall today the BoE will take centre stage but with a whole host of CPI readings out of the Eurozone both today and tomorrow and earnings from the US it will be a perfect day for an increase in volume and volatility as traders head towards the weekend. Ahead of the open we expect to see the FTSE 100 open higher by 7 points and the German Dax higher by 11 points.
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