Daily Market Update 15 May 2013 - Budget’s biggest loser? The AUD

Daily Market Update 15 May 2013 - Budget’s biggest loser? The AUD

Australia’s 13/14 Federal Budget was delivered by Treasurer Wayne Swan overnight. The key economic numbers were as follows: The budget deficit is expected to come in at $18b in 13/14 with the gap to narrow to $10.9b in 14/15. By 15/16 a surplus of $0.8b is estimated. In terms of economic growth the rate is expected to print below trend in 13/14 at 2.75% before rebounding to 3.0% from 14/15 onwards. Consumer price inflation (CPI) is also expected to come in sub-trend in 13/14 and 14/15, falling to 2.25% before rising modestly to 2.5% in 15/16. Last but not least, unemployment is expected to rise to 5.75% in both 13/14 and 14/15 before retracing quickly to 5.0% in 15/16. For those who wish to peruse the document in detail, click here<http://www.budget.gov.au/2013-14/content/overview/html/overview_01.htm>.


US import prices continued to decline in April with a fall of -0.5% reported<http://www.bls.gov/news.release/pdf/ximpim.pdf>. The result was in line with economic forecasts and left the annualised contraction at -2.6%. It was a similar story for exports with prices falling -0.7%, the largest monthly decline since June last year.


Continuing the hawkish rhetoric heard in recent months, Philadelphia Fed Chairman Charles Plosser<http://www.phil.frb.org/publications/speeches/plosser/2013/05-14-13_a-perspective-on-the-us-economic-outlook-and-monetary-policy.pdf> spoke in Sweden overnight, telling members of the SNS and SIFR that the FOMC’s ‘extraordinary level of monetary accommodation will have to be scaled back, perhaps more aggressively than some think, to ensure that inflation over the medium term remains consistent with our target.’ He cited improvements in the US labour market as a reason to taper their asset purchase program, informally known as QE, with a failure to do so ‘undermining the credibility of the (FOMC)’.


German investor sentiment rose fractionally in May with the closely-watched ZEW survey<http://www.zew.de/en/presse/2315> coming in at 36.4. While ahead of the 36.3 figure achieved in April, the result disappointment markets who were looking for an increase to 38.3. Mirroring the fall in the headline figure, current conditions also underwhelmed, falling to 8.9 from the 9.2 figure seen previously.


Eurozone industrial production rebounded strongly in March with Eurostat reporting<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14052013-AP/EN/4-14052013-AP-EN.PDF> an increase of 1.0%. The result beat expectations for an increase of 0.4% and was the largest month-on-month rise since July 2011. Strong gains were recorded in energy and manufacturing production, up 3.8% and 1.9% respectively, with the annualised decline improving to -1.7% from -3.2% in February.


Opening the door to further rate cuts from the ECB, if deemed necessary, European inflationary pressures continued to ease in April with Germany<https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_161_611.html>, Spain<http://www.ine.es/en/daco/daco42/daco421/ipc0413_en.pdf> and Italy all reporting lower annualised growth. Germany saw their rate fall to +1.2% from +1.4% while Spanish CPI plummeted a full percentage-point to +1.4%. Completing the hat-trick of declines, Italian CPI came in at +1.1%, down from +1.6% in March.


Ratings agency Fitch overnight upgraded Greece’s long-term sovereign<http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_id=791093&cm_sp=homepage-_-FeaturedContentLink-_-Learn%20More> rating from ‘CCC’ to ‘B-‘ sighting a rebalancing in the economy and high per capita incomes.


Indian wholesale price inflation hit the lowest level since November 2009 in April with the government reporting an annual increase of 4.89%. The result was below both the 5.96% rate of March and expectations for a decline to 5.50%.


The Day Ahead (All times AEST)


The ASX is expected to open at fresh, multi-year highs this morning with SPI futures pointing to a rise of 33pts on the open. While heavy declines in base metals would normally see our index under pressure, with the Aussie Dollar continuing to slide, an outcome that makes our market all the more attractive to offshore investors, and talk BHP<http://online.wsj.com/article/SB10001424127887323716304578482101543700158.html> Billiton could return funds to shareholders after reviewing CapEx plans, there’s every likelihood the market will hold onto gains throughout the trading session.


Weighed down by below-trend CPI & GDP forecasts in the budget, a stronger USD and further speculation over the business capital expenditure outlook, the AUDUSD came under significant pressure overnight with the currency sliding from .9975 to .9878 in the space of a few short hours. Despite the fact it’s now oversold on a technical basis, we expect the Aussie to come under further pressure today with a test of key support at .9850 likely. Should that level go, it will open the door to a move to .9580, the 2012 low. On the topside, we expect heavy selling to resume on a move back towards the .9936 level.

Australian wages will be in focus today with the release of the Q1 wage price index. Economists expect growth of +0.8% for the quarter, a result that’d leave the annual increase at +3.3%. While only a second-tier release, markets will also receive new car sales data for April.


Regional data releases today include unemployment and trade numbers from South Korea along with Japanese consumer confidence.


Economic growth dominates the data calendar this evening with a raft of European nations, along with the Eurozone itself, reporting Q1 GDP. Alongside those releases markets will also receive the Empire State manufacturing index, industrial production, producer prices and the NAHB housing market from the States, manufacturing sales from Canada, UK unemployment, Swiss producer price inflation along with French CPI. On the policy front the Bank of England will release their Q1 inflation report.


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