Börse & Märkte

Equites Firmer/Gold & Bonds Decline On Global Optimism

Equities are firmer, gold and core government bonds lower; all spells risk-on for now but moves the upside likely to be curbed through the session as we have Syria tensions still grating on nerves, the very real likelihood of non-event ECB and BOE meetings and US ADP jobs data which is the first tell-tale indicator of Federal Reserve tapering prospects in September, followed by jobless claims and Friday’s nonfarm payrolls report. Let’s also not forget the G-20 are meeting in Russia to discuss the current situation in Syria and if response by the West is warranted. Plenty of event risks in that case so the sellers may overpower the buyers as soon as we get rocked by either central banks, US jobs data or irreconcilable world leaders.

 

Growing optimism over the global economy drives the upside we are seeing; Fed’s Beige Book last night indicated modest growth in the US, although did support tapering by Fed as early as September. US car sales beat expectations, instilling confidence about the consumer recovery in the states. Wall Street finished Wednesday’s session higher, propelling Asian markets overnight which cheered the Bank Of Japan’s upgraded assessment of the Japanese economy and kept policies unchanged. Data wise, US ISM services PMI followed the encouraging trend exhibited by the services sector in China, the euro zone and the UK.

 

So, as Thursday’s session progresses, the attention swiftly turns to the BOE’s policy meeting – no change expected on policies with rates set to stay at record lows of 0.5% and QE still at GBP375billion. The market however is looking for more from the BOE – UK 10-year gilt yields have rose sharply on the back of the improving trend in UK economic data but the BOE have embarked on a forward guidance policy in which it anticipates that interest rates will remain low until late 2016 when by the unemployment rate will drop below the BOE’s threshold of 7% - a level the Bank feels comfortable with when it comes to tightening monetary policy.

 

The market is unconvinced however with UK gilts currently pricing in a rate hike around late 2015, a year before the BOE’s target. Traders are unconvinced that forward guidance will be effective as the UK economy resurges faster than anticipated – that means the BOE’s credibility is on the line as the Bank may have to back track at some point, saying they have an open mind to more QE in order to stem the rise in yields or face the real threat of higher yields choking the UK recovery. An accompanying statement with the BOE rate announcement therefore remains a possibility as the market is seeking answers; if the BOE does provide a statement, expect it to be extremely dovish with Carney playing bear again, telling the market not to get too excited about the pace of this recovery we are seeing and expressing that risks still remain on the downside.

 

In Frankfurt, ECB chief Mario Draghi has less pressure to sell the central bank’s forward guidance programme as Draghi has been vague about it, not disclosing thresholds and using verbal communication as a tool to instil confidence in the ECB’s monetary policy measures. We have seen an encouraging pick in euro zone economic conditions which will be welcomed by Draghi and Co in the form of a possible upward revision to growth and inflation forecasts but Draghi will have to strike up a balanced tone in which he is dovish but confident at the same time. There’s likely to be no hint or talk of rate cuts as further measures at this moment are not needed to stimulate economic growth but Draghi like Carney will express that risks remain on the downside and the market should not get ahead of itself about the recovery in the euro zone which is still fragile and vulnerable to political instability in the periphery.

 

After both central banks, attention will be on the ADP jobs report, an indicator seen as a precursor to the nonfarm payrolls data which are released Friday. ADP expected to show growth of 180k in the US economy last month, a solid number which could seal the fate of tapering in September if we see a similar result from the payrolls on Friday. The unemployment rate in the US currently stands at 7.4% - the market is convinced that a drop to 7.2% will hasten the Fed’s resolve to taper in September; Friday’s payrolls in that case will be the biggest risk event we face before the week comes to an end.

 

Finally, G-20 will be meeting in St Petersburg, Russia with Putin hosting the event – we all know there’s a divide between President Obama and Putin on the issue of military strike against Syria.  Obama has thrown the proposal to intervene to Congress for support and so far, senators seem to be backing him so investors are sure the US will strike. Russia however claims that intervention without the backing of the UN Security Council will be an act of Western aggression; it’s likely we will see these two super powers clash again on this matter as Obama attempts to convince world leaders the US is right to strike at Syria while Putin attempts to sway leaders to adopt the legitimate route by any intervention endorsed by all world leaders.