BoE minutes to provide insight into November meeting

Today’s UK Opening Call provides an update on:

• Technology shares expected to open lower despite improved earnings;
• MPC minutes could hint at further QE in theUK;
• Unemployment expected to remain at 8.1% while jobless claims expected to fall;
• Euro breaks above neckline after forming double bottom.

Stocks traded higher yesterday after strong third quarter earnings and improved economic data provided a boost for investors.

Earnings reported after the close in the US were not as positive though. Intel’s revenue was down from a year earlier at $13.46 billion, however it did still beat expectations along with earnings. IBM reported lower revenues for the third quarter than a year ago with earnings slightly beating expectations.

Despite better earnings from both companies, the reaction in the markets was negative as a result of both companies lowering forecasts for the fourth quarter. This suggests we’re going to see similar warnings from the rest of the industry.

This morning the minute will be released from the MPC meeting earlier this month. There were no surprises at this meeting with asset purchases and the interest rate both remaining at £375 billion and 0.5% respectively.

However, with the current asset purchases due to expire in November and the economy only just finding its way of recession, these minutes should provide a clue as to whether the MPC will increase the Asset Purchase Facility immediately or wait and see how the economy performs in the final quarter on its own. I expect the MPC to announce another £50 billion of QE next month.

The unemployment rate is expected to remain at 8.1% for August. We saw this figure dip in recent month’s due to the additional short term hiring associated with the London Olympics. As a result we should see this figure now edge higher again towards the end of the year unless we see a real improvement in the economy.

The number of new jobless claims is expected to have dropped for a third month in September by around 200 which suggests the lower unemployment may be a real reflection of current conditions.

The euro is trading higher against the dollar this morning. Over the last month, the pair has formed a double bottom on the daily charts and yesterday’s candle closed above the neckline. This suggests we’re going to see a significant move higher over the next week or so. The pound has found resistance this morning around 1.3130, near September highs, however I expect it to break above here, potentially targeting May’s highs around 1.33.

Sterling is trading higher in the cable charts this morning. The pair has found resistance this morning around 1.6125, the 61.8% retracement of the move from this month’s highs to lows. On the weekly chart this is also where the pair meets the descending trend line, dating back to April 2011, which it broke above briefly last month. This suggests the market still respects this level as a key area of resistance, so we may see the pound fall further from here.

Ahead of the open we expect to see the FTSE down 2 points, the CAC up 5 points and the DAX down 7 points.

Author: Craig Erlam

Tagged Corporate Earnings, EUR/USD, GBP/USD, IBM, Intel, Technology, UK, US