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EU Market Outlook - Unwinding the Hope Trade

Last updated 8/15/2012 1:13 AM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    Markets looking for positive US data to back recent upbeat mood

o    UK event risk not expected to change negative view

o    AU Consumer Sentiment misses badly at -2.5% vs 3.7% prev

o    AU Wage Price Index (QoQ) surprises at 1.0% vs 0.8% forecasted

o    Market Moves:

·          AUD shows steady unwind on less chance of QE3

·          Asian Equities and European & US equity futures suffer from positive US data

·          Gold and Oil remain tame after initial risk adjustment; Copper pulls back some of earlier losses

Asian equity markets followed on from the Dow& #8217;s late sell off as traders cut back on assets that were intended beneficiaries of potential Federal Reserve easing. Upbeat US Retail sales figures for July pushed the QE3 pea-shooter further back into the ammunition cupboard as it showed that there was still some natural fight left in this old dog yet.

In contrast, European Central Bank easing took a step closer (in theory only) as the regions austerity measures continue to stamp its authority over struggling growth prospects. GDP numbers for France and Germany failed to impress as questions were again being raised to just how long they will allow this toxic situation to sap the life from their economies before it reaches its own point of no return.

The markets have no doubt that once the US juganaught finds its feet; it will be able to create the internal confidence needed to turn the massive wheels of domestic demand, which by the way, can only occur without the forced liquidity injections from the Central Bank. In a similar game plan to China, this natural domestic consumption based evolution will further insulate against the deteriorating troubles of Europe.

Outlook

Today European markets will open lower as traders account for the reduced chances of Federal Reserve action at its next meeting. What may speed up the unwinding of the ‘Hope Trade’ (where traders position on the hope of action occurring) are positives from today’s US data that supports an economy on the mend.

Economic Events to watch:

Note: Times are in GMT

0830 UK           Aug Bank of England MPC meeting minutes

0830 UK           Jul UK monthly unemployment figures

0830 UK           August Agents' Summary of Business Conditions

0930 UK           Bank of England holds an ECTR auction

1100 US           Aug 10 MBA Weekly Mortgage Applications Survey

1230 US           Jul CPI

1230 US           Jul Real Earnings

1230 US           Aug Empire State Manufacturing Survey

1300 US           Jun Treasury International Capital Data

1315 US           Jul Industrial Production & Capacity Utilization

1400 US           Aug NAHB Housing Market Index  

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.