Daily Market Update 2 May 2013 - FOMC flops, over to ‘Super’ Mario

Daily Market Update 2 May 2013 - FOMC flops, over to ‘Super’ Mario

As expected, the FOMC left monetary policy unchanged overnight, leaving interest rates at 0-0.25% and monthly asset purchases at $85b a month. In the accompanying policy statement<http://www.federalreserve.gov/newsevents/press/monetary/20130501a.htm>, the committee noted that ‘fiscal policy was restraining growth’, a subtle dig at policymakers in Washington, and hinted that they could increase the size of asset purchases, stating they ‘were prepared to increase or reduce the pace’ in order to maintain appropriate policy accommodation.


Continuing the slowdown seen in other regional gauges, US manufacturing activity all but stalled in April with the ISM PMI gauge<http://www.ism.ws/ismreport/mfgrob.cfm> dropping to 50.7. The result was below both the 51.3 reading of March and the 50.7 figure expected by economists with the employment subindex sliding 4pts to 50.2, a result confirmed in April’s ADP report. While the ISM gauge was weak, there was some good news in the separate Markit release<http://www.markiteconomics.com/Survey/PressRelease.mvc/23c25e87b55a4290a8b99eb7ec057cd5> with their gauge rising 0.1pts to 52.1.

US private-sector hiring slowed in April with the ADP reporting<http://www.adpemploymentreport.com/2013/April/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-April2013-Final-Press-Release.pdf> an increase of 119k. While below both the 150k rate expected by the markets the downwardly-revised 131k pace of March, given the survey’s less-than-perfect track record for predicting non-farm payrolls growth, it cannot be assumed by this result that we’ll get another poor outcome on Friday.


US construction spending fell heavily in March with a decline of 1.7% reported<http://www.census.gov/construction/c30/c30index.html>. While well below the 0.7% increase that had been expected, upward revisions to February’s figure, reported as +1.5% compared to the initial reading of +1.2%, meant the result left spending essentially flat over the two-month period.


UK manufacturing activity continued to contract in April, albeit at a slower pace, with Markit’s<http://www.markiteconomics.com/Survey/PressRelease.mvc/127206c1139e42bb84ba7e53b6bac23a> PMI gauge rising to 49.8. The reading beat expectations for rise to 48.5 with improvements in new orders and output behind the reasonable result.


UK house prices slipped fractionally in April with the Nationwide house price index<http://www.nationwide.co.uk/NR/rdonlyres/BEB901F1-9E98-4A0B-AB43-53C77F728673/0/Apr_2013.pdf> falling 0.1%. The result was worse than the flat reading of March and expectations for an increase of 0.3% with the year-on-year rate declining to +0.9%.


The Day Ahead (All times AEST)


The European Central Bank hold their May monetary policy meeting this evening with markets expecting the official refinancing rate to be cut to a record-low rate of 0.5%. Presuming this headline hits our screens at 9.45pm this evening, something we feel is all but certain, it will make for an interesting press conference when President Mario Draghi speaks soon after at 10.30pm.


The ASX 200 looks set to sustain heavy losses this morning with SPI futures pointing to a decline of 24pts on the open. While commodity prices were once again thumped in overnight trade, something that will weigh heavily on the materials sector, given the ongoing quest for yield and dip-buying mentality evident recently, it wouldn’t surprise to see the market trim losses throughout the session. The outlier will be the Shanghai Composite which resumes following a three-day break.


The Aussie Dollar reverted to being a proxy for global growth, albeit temporarily, with the currency sliding one full cent following lacklustre data in the US. While it usually finds friends whenever such a move occurs, with growth-related data continuing to weaken and having failed to break above resistance at 104 earlier in the week, it’s likely that traders will revert to ‘selling on rallies’ given the massive risk events that arrive in the days ahead. Support is located at 1.0260 and again between 1.0235-20 with selling resistance kicking in above the 103c level.


Australian building approvals for March and Q1 import/export prices will be released at 11.30am. On the housing front economists expect the number of approvals to have grown by 1.3% after rising 3.1% previously. Turning to terms of trade, export prices are expected to have surged 4.8%, largely due to a resurgent iron ore prices, while import prices are expected to have slipped by 0.5%.


Like yesterday, manufacturing PMI gauges dominate the regional data calendar today with Markit releasing figures from China, South Korea, Taiwan and India. The Bank of Japan also release the minutes of their April 3-4 monetary policy meeting, something that’ll make for fascinating reading given the impact of their statement.


The manufacturing data reads continue thick-and-fast in Europe with figures from the Eurozone, along with individual nations, due out in the early evening. Elsewhere we’ll also receive UK construction PMI along with Italian producer prices. In the States the focus is squarely on the labour market with initial jobless claims, Q1 labour costs and Challenger layoff series scheduled for release. Elsewhere we’ll get the New York ISM along with trade figures from Canada.


Estee Lauder and Kellogg’s report Q1 earnings this evening.


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