TRADERS´ Blogs

At 1030 GMT this morning Bank of England Governor Mervyn King will deliver the last Inflation Report of 2012. This report will include the Bank’s economic assessment along with its projections for inflation and growth for the next two years.

It has been a quiet London session as a public holiday in the US keeps volumes low. This has kept major risk assets stuck in tight ranges. EURUSD is trading between 1.2695 – 1.2740. It’s a big week for the Eurozone, and it kicks off today with a finance minister’s meeting that starts in Brussels at 1600 GMT. We expect to hear from them some time later this evening once the meeting has concluded. We already know that Greece won’t get its next tranche of bailout funds in time for an EU 4 billion bond redemption payment that is due on Friday. However, there will be no default, as the EU authorities will deal with the payment. Thus, although Greece’s parliament signed off on the 2013 Budget and another round of austerity measures, it still won’t get the money.

The market has been in risk off mode for the majority of the London Session as the news flow out of Europe suggested that Greece still has more hurdles to jump through before it will get its next tranche of bailout funds. A German official spokesman declined to name a possible date that Greece would receive the funds, however it seems unlikely to be at Monday’s Eurogroup meeting. This led to some concern that Athens will not be able to make its EU4 billion bond redemption payment due on 16^th November. However, an EU spokesperson confirmed that there would be no Greek default next week and that the authorities were aware of Greek financing needs.

The re-election of President Barack Obama happened with relative ease when the results of yesterday’s election were announced. As we said yesterday in our “Trader’s guide to the US elections”, the markets were likely to stage a mild rally on the back of an Obama victory. The dollar has sold off and European stocks opened higher, US stock futures also point to a higher open for US equity markets later today.

After what seems like an eternity of campaigning, choosing candidates, party conventions and attack ads the US Presidential election result 2012 will be called sometime after 2300 Eastern/ 0400 GMT.

The single currency has continued its decline today after falling through some key technical levels at the end of last week including the daily Ichimoku cloud chart and its 200-day sma. The pair has traded in a tight range today between 1.2765 and 1.2830 (the 200-day sma). We see this range persisting as we lead up to some major event risks this week. The first is the US Presidential election tomorrow, then the crucial Greek Parliamentary vote on Wednesday and the Chinese power handover, BOE meeting and ECB meeting on Thursday.

The re-opening of the US stock markets after super storm Sandy isn’t causing the wave of volatility or surge in volumes as some had expected. Sentiment has drifted from the markets as we have moved through the London session into the NY morning. It appears like those who can make it into work on the East Coast of the US are mostly squaring up positions ahead of month-end. This has eased some of the upward pressure on EURUSD as it backs away from the key 1.30 level.

The worst of super storm Sandy appears to be over and the clean-up operation is underway. It looks like the damage is extensive and flooding, power outages and damages to train and public transport services could take a substantial amount of time to get back up and running. From a financial market perspective the problem isn’t just opening the stock exchanges in Manhattan it’s also about getting people back to work, which may take some time. This could keep volumes low for another couple of days and this enhances the chance of volatility later this week, which also coincides with the October Payrolls data.

The biggest news overnight was from the Japan – the government announced a surprise stimulus package to try and boost the flagging economy. The overall size of the stimulus is miniscule compared with stimulus programmes elsewhere, at only $10 billion; however the timing of the move is significant. With Japan’s government in deadlock and facing its own fiscal cliff, lawmakers have very little rope to work with. Financial legislation to increase the borrowing limit has been blocked by the opposition to try and force fresh elections (the umpteenth in recent years). If no agreement is reached then Japan, the world’s largest debtor, could go over the fiscal cliff edge at the end of November. The money for this stimulus has been found from other budgets, but it is unlikely that more cash will be found. This leaves the BOJ as the only entity in Japan with the tools to kick-start the economy. For an export-based economy like Japan the best way for them to do this is to try and weaken the yen. As rates are already at 0.1%, we expect the Bank to boost its Asset Purchase Programme. The market is looking for an increase of JPY 10 trillion, however we believe there is a good chance it could do more than this – potentially to the tune of JPY 20 trillion – to try and weaken the currency.

Fundamental Update: Q3 earnings round-up

The stock market has found it hard to break through some key resistance zones recently, which has left major stock indices treading water. We are in the middle of Q3 earnings season, so will corporate results and guidance for Q4 help to give the market some much-needed direction?