Daily Market Update 1 May 2013 - FOMC, China set to dictate direction

Daily Market Update 1 May 2013 - FOMC, China set to dictate direction

US consumer confidence rebounded strongly in April with the Conference Board index<http://www.conference-board.org/data/consumerconfidence.cfm> rising to 68.1. The reading was above both the upwardly-revised 61.9 reading of March and expectations for an increase to 60.8 and was the highest level seen since November last year.


Manufacturing activity in the Chicago area contracted unexpectedly in April the PMI index<https://www.ism-chicago.org/chapters/ism-ismchicago/files/ChicagoPMI-13-04.pdf> falling to 49.0. The reading was well below the 52.4 reading achieved in March and expectations for a rise to 52.5 and was the lowest level seen since September 2009. Large falls were recorded in both the employment and production subsectors although new orders did increase, rising to 53.2 from 53.0, suggesting activity will likely rebound in the months ahead.


US house prices continued to push higher in February with the CaseShiller survey<http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldocumentfile&blobtable=SPComSecureDocument&blobheadervalue2=inline%3B+filename%3Ddownload.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blob>, an index that tracks price movements in 20 major metropolitan areas, rising a further 1.2%. The result was above the 0.9% increase expected by the markets and left the annualised increase at 9.3%, the fastest pace seen since May 2006.


Canada’s economy expanded at a faster-than-expected pace in February with a rise of 0.3% reported<http://www.statcan.gc.ca/daily-quotidien/130430/dq130430a-eng.pdf>. The result beat expectations for an increase of 0.2% and matched the upwardly-revised 0.3% expansion recorded during January.


Eurozone unemployment<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-30042013-BP/EN/3-30042013-BP-EN.PDF> hit another record high in March with an increase of 0.1% to 12.1% reported. On the national front it was a mixed performance with German<https://www.destatis.de/EN/PressServices/Press/pr/2013/04/PE13_151_132.html;jsessionid=27C19886B5B89540846D7A678D7D0E42.cae3> unemployment rising for a second-consecutive month, up 4k against expectations for an increase of 2k with the rate holding at 6.9%, while Italian unemployment came in at 11.5%, better than the 11.7% rate expected.


Further guaranteeing a rate cut from the ECB on Thursday, Eurozone inflation<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-30042013-AP/EN/2-30042013-AP-EN.PDF> fell like a stone in April with an annual increase of 1.2% reported. The figure was well down on both the 1.7% increase of March and expectations for a decrease to 1.6% and was the lowest level seen since February 2010.


German retail sales fell unexpectedly in March with a decline of 0.3% reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/04/PE13_150_45212.html;jsessionid=27C19886B5B89540846D7A678D7D0E42.cae3>. The result was down on the flat reading expected by the markets and left the annualised decline at an ugly -2.8%. While poor, the outlook for spending looks bright, at least according to the forward-looking GfK consumer survey, with the index rising to 6.2 in May, the highest level seen in nearly five years.


French consumer spending rose strongly in March with an increase of 1.3% reported<http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20130430>. The figure was well above the 0.1% advance expected by economists and completely offset the 0.2% decline of February. Elsewhere there were further signs of weakening inflationary<http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130430> pressures with producer price inflation printing flat for March.

Spain’s economy contracted for a seventh-consecutive quarter in Q1 with a decline of 0.5% reported<http://www.ine.es/en/prensa/cntr0113a_en.pdf>. The result was in line with market forecasts and left the annualised contraction at -2.0%, the worst figure seen since Q4 2009.


More subdued lending data was released in the UK overnight with the BoE reporting<http://www.bankofengland.co.uk/statistics/Documents/mc/2013/mar/moneyandcredit.pdf> an increase in consumer credit in March of £500m. The result equalled the expansion seen in February and was in line with market forecasts. Elsewhere mortgage lending undershot forecasts, up £400m against expectations for £600m, although approvals did beat, rising to 53,504 from 51,947 in February.


The Day Ahead (All times AEST)


Chinese and European markets are on holidays, returning tomorrow.


Onwards and upwards for the ASX 200 this morning with SPI futures pointing to a rise of 4pts on the open. While investors will likely remain cautious up until the release of the official China manufacturing PMI at 11am, with the search for yield ongoing and the mindset of ‘bad data equals lower interest rates’ clearly evident, even if the data prints under expectations, it’s unlikely to be enough to reverse the bullish momentum established in recent days.


Like equities, the movements of the Aussie Dollar today will largely be dictated by the Chinese data released at 11am with a strong reading likely to see a test of resistance at the 104 level while a weak outcome will see the currency sink back towards buying support at the 1.0330 level. While there’s a chance we may break beyond this range, with the FOMC rate decision out tomorrow morning, it would have to be a wayward print in order for this to be achieved.


A raft of second-tier domestic data releases arrives today with AIG manufacturing PMI, HIA new home sales and the RBA commodity price index scheduled for release.


Regional releases today include South Korean CPI and trade along with manufacturing PMI from China.


Economic releases this evening include the FOMC policy decision, manufacturing PMI gauges from the ISM and Markit, the ADP national employment report along with US construction spending. Elsewhere we’ll also receive UK manufacturing PMI along with the Nationwide house price index.


Facebook, Mastercard, Visa and Merck headline US Q1 earnings reports this evening.



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