Markets Open on Cautious Note

Daily Analysis - 14/09/2015

Chinese Data Continues to Worry Investors Ahead of Looming Announcements from the Federal Reserve


The US Dollar is trading weaker across the board with Asian equity markets opening lower after China’s economic data continued to disappoint expectations. Economic data is expected to be light today ahead of an important week which will see the US Federal Reserve, the Bank of Japan and the Swiss National Bank’s report on monetary policy.

Goldman Sachs Forecasts $20 Oil

Crude oil futures for October traded sideways last week after brief attempts to test the highs of $46.45. The US Energy Information Administration revised its US supply forecasts as it expects US crude oil production to grow 500,00 barrels per day against earlier estimates of 600,000 Bpd. The EIA also raised its forecasts for demand for OPEC output in 2016 by an estimated 500,00 Bpd. While the EIA's forecasts were expected to be positive for the crude oil prices, Goldman Sachs released a note stating that oil prices could remain low and potentially decline to $20 per barrel. WTI futures are currently trading at $44.58 while Brent futures were trading at $47.78 with the spread just over $3.  WTI crude oil futures are trading near the major technical support levels between $44.20 – $43.50. A break below this support could see prices decline towards the previous lows near $40.


US Producer Prices Surprise

Data released on Friday showed the US Producer Price Index post a surprise beat in estimates. While headline PPI stayed flat for the month, core producer prices rose at a 0.30% pace, beating estimates of 0.10% and growing at the same pace as last month. The PPI data often signals potential changes to upcoming consumer inflation figures and in this aspect the markets were a bit upbeat on the PPI data. However, the sentiment soured after the University of Michigan released its consumer sentiment survey which fell to 85.7, below estimates of 91.4. The decline saw consumer sentiment hit the lowest levels year-to-date, heightening concerns about a further consumer retrenchment. The US Dollar has been trading weaker ever since as investors unwind their liftoff bets ahead of the Federal Reserve’s interest rate decision later this week.


Chinese Industrial Production Falls

Data released over the weekened from China showed the industrial production rose at a slower than expected pace of 6.10%, below forecasts of 6.30%. However, compared to the previous month, industrial data managed to post upbeat data, rising modestly from 6.00% previously. The big disappointment came from fixed asset investment which grew at a slower than expected pace of 10.90%, versus 11.20% in the prior period. The weak data from China continues to haunt investors after disappointing economic data catalyzed a brief crash in financial markets. This morning, equity markets were cautious as a result. The Nikkei 225 Index slumped -1.40% while the Shanghai and the Hang Seng Index were down -3.02% and -0.10% respectively. The Dow Jones futures have been trading mostly sideways but edging higher, pointing to a potential break out in the near term.


Limited Data Ahead

The global economic calendar is very light today with no major releases scheduled with the exception of PPI and retail sales figures from Switzerland and the Euro Area’s latest industrial production numbers. Financial markets are likely to remain cautious however ahead of upcoming Central Bank decisions and statements.  The Bank of Japan will be the starting point with expectations of expanded easing measures followed up by the SNB's monetary policy review and the the FOMC meeting starting on Wednesday.  The announcement and statement of monetary policy are due Thursday. It would not be surprising to see a risk-off sentiment engulf the markets ahead of the uncertainty. At the time of writing, the Yen was seen trading firm against its peers while the US Dollar is tumbling across the board in the run up to the main events in the week ahead.


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