Daily Market Update 4 April 2013 - When Central Banks take centre stage

Service sector activity across the US expanded at the slowest pace since August last year in March with the ISM non-manufacturing PMI gauge falling to 54.4. The reading was well below both the 55.8 reading expected by the markets and the 56.0 figure of February with the employment index, a key component given the number of persons employed in services-related industries, falling to 53.3, the lowest level seen since November 2012.


In a sign that Friday’s non-farm payrolls report in the US may well underwhelm, the ADP national employment report, a gauge on private sector payrolls, disappointed to the downside overnight, rising by 158k in March against expectations for an increase of 200k. The result was well below the upwardly-revised 237k clip of February and was the lowest level seen since October 2012.


Inflationary pressures across the Eurozone continued to slide in March with Eurostat reporting a year-on-year increase of just 1.7%. Whilst in line with market forecasts, the result was lower than the 1.8% annual pace recorded in February and well below the 3.0% high struck in November 2011. A sharp decline in energy prices, down to +1.7% from +3.9%, was largely responsible for the decline with prices for services and non-energy industrial goods increasing while food, alcohol and tobacco remained static at +2.7%.


UK construction activity contracted for a fifth-consecutive month in March with the Markit/CIPS PMI gauge coming in at 47.2. While above the 46.8 reading of February, the result was below the 47.5 outcome that had been expected by the markets with gains in housing construction partially mitigating another poor civil engineering print.


Indian service sector activity slowed to the slowest pace in 17 months in March with the Markit/HSBC PMI reading falling to 51.4. The result was below the 54.2 figure struck in February with a fall in new business the chief catalyst behind the sharp decline.


The Day Ahead (All times AEDT)

Chinese markets will be closed today and tomorrow for the Ching Ming festival.


Australian stocks look set to slide once again this morning with SPI futures pointing to a decline of 35pts on the open. With the materials and energy sectors likely to weigh following further falls overnight, if the market is to stage a recovery throughout the course of the day, it’s likely that we’ll require weak local data, something that’ll put further rate cuts back on the agenda, to prompt more yield-chasing across financial and consumer-related stocks.


Having hit a high of 1.0498 early in the US session, the Australian Dollar has tracked equity markets lower overnight with the currency sliding to as low as 1.0450 before attracting bids in early Asian trade. While the retail sales and building approvals data will dictate its course temporarily, the Bank of Japan policy decision this afternoon, something that will be used to gauge USD strength, will determine what path the AUD takes today. Support is found at 1.0450 and again at 1.0415 with resistance kicking in at the overnight high of 1.0498.


A big day on the domestic data front with building approvals, retail sales and services PMI data all scheduled for release. Markets are looking for an increase in approvals of 2.4% after falling by the same margin in January while retail sales are expected to rise by a modest 0.3% in February. The services PMI gauge will be out at 9.30am with the ABS data scheduled for 11.30am. While it won’t get much attention, keep an eye out for the private housing figure in the BA release. With the RBA looking for this sector to take up the slack from the waning mining investment boom, this number will be influential in determining the future path of domestic monetary policy.


The Bank of Japan (BoJ) conclude their two-day policy meeting this afternoon. In the absence of open-ended, multi-asset class purchases to bring consumer price inflation to 2% within two years, there is a more than reasonable chance that the Board may well disappoint.


Data out tonight includes service-sector PMI and producer prices from the Eurozone along with jobless claims and the Challenger layoffs series in the States. On the policy front the ECB and BoE conduct their latest monetary policy meetings while the ‘Big Two’, ECB Chief Mario Draghi and Federal Reserve Chairman Ben Bernanke, will also address the markets.


Spain and France stage benchmark 10-year bond auctions this evening.


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