Daily Market Update 17 April 2013 - Rebound Wednesday… but will it last?
US CPI<http://www.bls.gov/news.release/pdf/cpi.pdf> fell unexpectedly in March with a decline of -0.2% recorded. The result was below the flat reading expected by the markets and left the year-on-year rate at just 1.5%. Core inflation, that excluding volatile items such as energy and food, inched up by 0.1%, half the rate expected, with the annual falling back to 1.9%. With employee earnings rising while prices fell, real weekly earnings surged by 0.5%, well above the 0.1% pace expected.
US housing<http://www.census.gov/construction/nrc/pdf/newresconst.pdf> starts hit the highest annual rate since June 2008 in March with a 7% lift to 1.036m reported. The figure was above the 930k clip expected by economists and the upwardly-revised 968k rate of February with a surge in unit construction helping to offset a fall in single-standing dwellings. While the near term prospects look good, there was some bad news out the curve with building permits, a forward indicator on future construction activity, falling by 3.9% to 902k, the lowest year-on-year increase since November 2012.
US Industrial<http://www.federalreserve.gov/releases/g17/Current/g17.pdf> production increased by 0.4% in March, double expectations, following an upwardly-revised 1.1% rise in February. While strong on the surface, the internals were not with a 5.3% surge in utilities masking a 0.1% contraction in manufacturing.
A bearish article from the Financial<http://www.ft.com/intl/cms/s/adb07bbe-a655-11e2-8bd2-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fadb07bbe-a655-11e2-8bd2-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fuk#axzz2QeyGyMf1> Times overnight with Zhang Ke, head of Chinese accounting firm Shinewing, stating that Chinese local government debt is ‘out of control’ and had the potential to spark a financial crisis bigger than the US housing market crash of 2008-09. While it had little impact overnight, certainly not on base metals prices or the Aussie Dollar, it will be interesting to see whether it has greater reverberations once Asian trade gets underway today.
The IMF<http://www.imf.org/external/pubs/ft/survey/so/2013/RES041613A.htm> lowered their global growth forecast for 2013 overnight, shaving 0.2% off their earlier estimate to 3.3%.
US FOMC committee members Yellen, Dudley, Duke, Evans, Kocherlakoa and Plosser<http://www.philadelphiafed.org/publications/speeches/plosser/2013/04-16-13_reconsidering_EXIT.cfm> were all in action overnight. Given their status as permanent voting members and noted policy doves, most attention was directed towards those speeches from Janet Yellen<http://www.federalreserve.gov/newsevents/speech/yellen20130416a.htm> and William Dudley<http://www.newyorkfed.org/newsevents/speeches/2013/dud130416.html> with both suggesting current policy was appropriate given recent economic data.
Eurozone inflation fell fractionally in March with an annual rate of 1.7% reported<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-16042013-AP/EN/2-16042013-AP-EN.PDF>. The reading was unchanged from the preliminary estimate released earlier in the month with core inflation, that excluding food and energy, ticking up to 1.6% from 1.4% in February.
Reflecting global growth concerns that have gripped markets in recent days, German investor sentiment cooled in April with the ZEW<http://download.zew.de/e_04_2013_table.pdf> survey falling to 36.3. The result was below the 48.5 reading of March and expectations for a decline to 42.0 with current economic conditions also slipping to 9.2 from 13.6 previously.
UK CPI held at the highest level since May 2012 in March with the ONS reporting<http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/march-2013/stb---consumer-price-indices---march-2013.html> an annual rise of +2.8%. The result was in line with economist forecasts with the month-on-month advance slowing to +0.3%. Keeping with readings seen elsewhere around the globe, producer price inflation continued to slow with a 0.3% monthly increase leaving the annual rate at 2.0%, the lowest level since July 2012.
Italy’s trade balance snapped back into the black<http://www.istat.it/en/archive/87676> in February with a €1.086bn surplus recorded. While better than the €1.195bn deficit of February 2012, like the Eurozone data released previously, the internals were weak with a 2.8% annual fall in exports dwarfed by a huge 9.6% decline in imports.
The Day Ahead (All times AEST)
The ASX 200 looks set to go on an early short-covering frenzy today with hefty gains in base metals, positioning in the resources space and overnight gains in US markets set to send the index up by around 0.6% on the open. While we’ll start off strongly, with concerns surrounding China doing the rounds, the performance of mainland Chinese equity indices will likely determine how we finish off the trading session.
Benefitting from a renewed bid in US equity markets, the Aussie Dollar continued to recover ground overnight with the currency touching a high of 1.0397 before running into a wall of selling pressure. While it is continuing to test this level as at the time of writing, after the Kiwi CPI data hits the screens in a few hours time, something that will undoubtedly be used as a proxy for our figure next week, we will be watching for any signs of nervousness in light of renewed China concerns. Resistance is layered at 1.0395 and again at 1.0402 with a break targeting a move to 1.0440. On the downside we suspect the currency will be well supported on any move back towards the 1.0340 level.
Perhaps providing a preview for Australia’s reading next week, New Zealand Q1 CPI will be released at 8.45am this morning. Markets expect a lift of 0.4% for the quarter leaving the annual rate steady at 0.9%. Elsewhere we’ll get the Westpac-MI leading index from Australia, South Korean PPI and Japanese consumer confidence.
Central Banks dominate the calendar this evening with the release of the Fed’s Beige Book, speeches from FOMC members Bullard and Rosengren, the minutes of the Bank of England’s MPC April meeting along with the Bank of Canada’s April monetary policy decision. On the data front we’ll also receive unemployment numbers from the UK.
Germany will conduct an auction of 10-yr benchmark bunds this evening.
Another busy night on the US earnings front with American Express, Bank NY Mellon, Bank of America, Ebay and Mattel all scheduled to report.