Daily Market Update 18 March 2013

Daily Market Update 18 March 2013

A 9.9% levy on any balances over €100,000 and 6.75% rate for smaller amounts in return for bank equity. A 2.5% increase in the corporate tax rate to 12.50% with junior creditors to take haircuts on sovereign bond holdings. That sums up the terms agreed upon by the Eurogroup, IMF and Cypriot government over the weekend with the small-yet-heavily indebted nation taking what can be only called unprecedented measures in order to receive a bankruptcy-avoiding €10bn bailout. With all deposits frozen until at least Tuesday, the Cypriot parliament must now pass the measures into law in order to receive the funding, something that increasingly-uncertain given debate was suspended on Sunday without an agreement being reached.


US consumer price inflation rose at the fastest pace in nearly four years in February with the Labour Department reporting<http://www.bls.gov/news.release/cpi.nr0.htm> an increase of 0.7%. The result was above the 0.5% rise that had been expected by economists and left the year-on-year advance at 2.0%. Excluding energy and food, volatile items that tend to skew the headline result, so-called “core” inflation rose by just 0.2%, a figure that was slightly below the 0.3% increase of January. While inflationary pressures in non-volatile items remain a non-issue, with headline inflation rising at a faster pace than wages, real weekly earnings fell by 0.2%, the same rate as reported in January.


US industrial production rose at the fastest pace since November 2012 in February with the Federal Reserve reporting<http://www.federalreserve.gov/releases/g17/Current/default.htm> an increase of 0.7%. The result was near-double the 0.4% advance that had been expected by the markets and flat reading recorded in January with an 0.8% lift in manufacturing output, led by a 3.6% surge in autos, largely behind the strong result. With output on the rise, capacity utilization followed suit with an increase to 79.6%, the greatest level of usage since March 2008.


Manufacturing activity across the New York State continued to expand during March, albeit at a slightly slower pace, with the NY Fed’s Empire<http://www.newyorkfed.org/survey/empire/empire2013/2013_03Report.pdf> State Manufacturing Index falling to 9.24. The result was slightly below both the 10.04 reading of February and forecasts for a decline to 10.00.


Bucking the trend of economic reports seen elsewhere, US consumer sentiment fell to lowest level since December 2011 in March with the Thomson Reuters/University of Michigan survey dropping to 71.8. The result was well below the 77.6 reading of February and expectations for a rise to 78.0 with a sharp drop in the expectations sub-index, down to 61.7 from 70.2 in February, behind the weak result.


Despite most economic data pieces beating yet again, the DJIA fell for the first time in 11 sessions with the consumer data, positioning and 1.9% decline in JP Morgan Chase shares enough to snap the longest winning streak seen since 1996.


As you would expect given rising unemployment and persistent economic weakness, Eurozone labour costs continued to fall in the December quarter 2012 with Eurostat reporting<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-15032013-BP/EN/3-15032013-BP-EN.PDF> a year-on-year increase of just 1.3%. The result was lower than the 1.8% rate of Q3 and nearly a full percentage point below the 2.2% inflation rate recorded in the year to December.


The Day Ahead (All times AEDT)


Australian stocks look set to give back some of Friday’s frothy gains with SPI futures pointing to a decline of 23pts on the open. While on most Monday’s we’d usually see our market finish close to flat as we await cues from offshore markets, given the huge plunge in the EUR this morning following the Cypriot bailout terms announced over the weekend, there appears to be strong chance that we’ll see losses far greater than what SPI is indicating once we get underway this morning.


Mirroring the plunge in the Euro, only to a lesser degree, the Australian Dollar has opened sharply lower this morning with the currency currently fetching 1.0355. While it is currently testing the 200-day MA found at 1.0360, given risk assets will likely be on the back foot throughout the Asian session, a move back to towards the 103c level looks likely in the absence of any positive news on Cyprus.

Australian new cars sales for February will be released at 11.30am this morning.

Regional data releases today include South Korean PPI, Westpac Q1 consumer survey in New Zealand along with Chinese house price data for February. Given concerns over further tightening measures from the PBoC, expect the latter to garner plenty of market attention, particularly if year-on-year growth accelerates hard from the 0.8% pace of January.


A quiet data calendar this evening with trade numbers from the Eurozone and Italy, along with the NAHB survey in the States, the only releases of note.



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