Daily Market Update 3 May 2013 - Risk rallies, will pause before payrolls

Daily Market Update 3 May 2013 - Risk rallies, will pause before payrolls

As expected, the European Central Bank cut their official refinancing<http://www.ecb.int/press/pr/date/2013/html/pr130502.en.html> rate overnight, lopping an additional 0.25% off to 0.50%. In what was largely a non-event, President Mario Draghi addressed the media<http://www.ecb.int/press/pressconf/2013/html/is130502.en.html> shortly after the decision, telling them that the decision had not been unanimous, hinting that some wanted more while others none at all, with council members keeping an ‘open mind’ when it came to implementing negative deposit interest rates should economic conditions require.


US initial jobless claims fell to the lowest level since January 2008 last week with the Department of Labour reporting<http://www.dol.gov/opa/media/press/eta/ui/current.htm> a decline to 324k. The result was far stronger than both the 342k figure of the previous corresponding week and expectations for a rise to 345k with the 4-week rolling average, a far better gauge to determine labour market strength, falling to 342.25k.


Planned job layoffs in the US fell heavily in April with the Challenger series falling to 38,121. While volatile, the result was far stronger than the 49,255 figure of March.


US productivity and labour costs both undershot expectations in Q1 with the BLS reporting<http://www.bls.gov/news.release/pdf/prod2.pdf> increases of 0.7% and 0.5% respectively. While below the 1.2% and 0.7% gains that had been eyed by the market, the improvement in productivity, up from    -1.7% in Q4, was welcomed despite the underwhelming bounce.


The US trade deficit continued to narrow in March with the Commerce Department reporting<http://content.govdelivery.com/attachments/USESAEI/2013/05/02/file_attachments/208405/US%2BInternational%2BTrade%2Bin%2BGoods%2Band%2BServices%2B%2528March%2B2013%2529.pdf> a decline to $38.8b. The result was firmer than the $43b deficit recorded in February and expectations for a fall to $42b with a 2.8% decline in imports, hitting the lowest level since 2009, behind the surprise result.


Eurozone manufacturing activity continued to decline in April with Markit’s final PMI<http://www.markiteconomics.com/Survey/PressRelease.mvc/2821095d93c042abaebdfdc5cf806deb> gauge coming in at 46.7. While below the 47.8 reading seen in March, the figure was an improvement on the flash reading of 46.5 released in late April. To see how each individual nation performed, click on the following link<http://www.markiteconomics.com/Survey/Page.mvc/PressReleases>.


Mirroring the performance of the manufacturing survey released earlier in the week, UK construction activity continued to decline in April, albeit at a slower pace, with Markit’s construction PMI<http://www.markiteconomics.com/Survey/PressRelease.mvc/0d13e135b5ec42df8cbafa939ee15660> gauge rising to 49.4. The result was an improvement on both the 47.2 figure of March and expectations for an increase to 48.0.


Italian producer prices<http://www.istat.it/en/archive/89308> were flat in the month of March with the annual rate falling to -0.1% from +0.3% in February.


The Day Ahead (All times AEST)


Japanese markets are closed for the Constitution Day holiday.


The ASX 200 looks set to recover all of yesterday’s losses this morning with SPI futures pointing to a gain of 28pts on the open. While this is reflective of the gains seen on Wall Street, one suspects that Chinese equities will have to join in the rally in order to see our market hold gains through to the close. Best performances are likely to come from the energy sector after huge gains in crude prices overnight with iron ore plays likely to partly offset after a -3.5% swoon in Shanghai.


The Aussie Dollar had an uneventful session overnight in comparison to other major pairs, oscillating in a relatively thin range between 1.0220-1.0263. Despite heavy falls in the iron ore price and a part retracement in base metals following an initial surge yesterday, with strong buying support at 1.0220 preventing a move lower, at least for the moment, it’s likely that the currency will grind higher over the course of today’s session. On the topside resistance is found at 1.0260, 1.0280 and again at 1.0300.


Australian Q1 producer price inflation will be released this morning at 11.30am. Costs are expected to rise 0.2% on quarter leaving the annual rate at 1.6%. Beforehand we also get services PMI from the AIG, an important release given the significance of the sector within the broader Australian economy.

The Reserve Bank of India announce their May policy decision later this afternoon. On the data front we’ll also receive Chinese non-manufacturing PMI at 11am.


US non-farm payrolls will be released at 10.30pm this evening. Economists expect the economy to have added an additional 145k positions in April with the unemployment rate, average work week and average weekly earnings expected to remain steady at 7.6%, 34.6 hours and +0.2% respectively. Elsewhere markets will receive non-manufacturing PMI and factory orders from the US, services PMI figures from the UK along with Eurozone producer prices.


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