Daily Market Update 2 July 2013 - RBA set to maintain the status quo
US manufacturing activity rebounded in June after contracting in May with the ISM’s PMI guage<http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942> rising to 50.9. The result bettered forecasts for a rise to 50.5 and was well ahead of the 49.0 reading previously achieved in May. Of the survey subsectors new orders, production, exports and imports all expanded strongly helping to offset worrying contractions in employment and order backlogs. Elsewhere the separate Markit gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/61c3e275eedf42b5abc0566f4adf015e> slipped to 51.9 in June after printing 52.2 in May with the employment subindex mirroring the performance in the ISM with a decline to 49.9.
US construction spending rose modestly in the year to May with an increase of 0.5% to $874.9b reported. While marking the highest level of spending in nearly 4 years, the result was fractionally below the 0.6% increase expected by the markets.
Eurozone manufacturing activity continued to shrink in June, albeit at a slower pace, with Markit’s PMI index<http://www.markiteconomics.com/Survey/PressRelease.mvc/2bc1f71d2a9f427183cd528a3ed7832a> rising to 48.8. The reading was above May’s figure of 48.3 and the ‘flash’ estimate of 48.7 released in late May and was the highest level seen in 16 months. As opposed to usual reading, Germany outperforming with everyone else in the doldrums, the tables were turned this month with France<http://www.markiteconomics.com/Survey/PressRelease.mvc/4951772002d4429881c48fda4cafcae5>, Italy<http://www.markiteconomics.com/Survey/PressRelease.mvc/675369f0f11f4232a9cd0a1dc5c63c8f> and Spain<http://www.markiteconomics.com/Survey/PressRelease.mvc/48c2073dc185426783c9c6c77aeff697> all recording multi-year highs while Germany<http://www.markiteconomics.com/Survey/PressRelease.mvc/1923f6df3e784218afce4dde78ee6c2f> sank to a two-month low of 48.6.
Eurozone unemployment rose to a record-high in May, thanks in part to revisions to prior data, with Eurostat reporting an increase to 12.1%. The result was below the 12.0% rate of April, revised down from 12.2%, but ahead of expectations for a rise to 12.3%. To see the Euro-area report card in full, please click here<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-01072013-BP/EN/3-01072013-BP-EN.PDF>.
Eurozone inflation<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-01072013-AP/EN/2-01072013-AP-EN.PDF> ticked higher in May with the annualised rate rising to 1.6%. While higher than the 1.4% rate of April, the figure remains below the 2% level targeted by the European Central Bank.
Italian unemployment<http://www.istat.it/en/archive/94869> hit a fresh record high in June with the rate increasing 0.2ppts to 11.2%. The result was above expectations for an increase to 11.1% and above the 11.0% reading previously seen in May.
Continuing to defy expectations, UK manufacturing activity expanded at a faster pace in June with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/c853fab910d9425083c5eee0326d3fe3> hitting a two-year high of 52.5. The reading was above expectations for a rise to 51.5 with improvements in output and orders behind the strong result.
UK consumer credit continued to inch higher during May with an increase of £700m reported. While it bettered estimates by £100m, mortgage lending fizzled with the £300m increase less than half the rate expected.
The Day Ahead (All times AEST)
The Reserve Bank of Australia’s July monetary policy decision will be released today at 2.30pm. While we believe there is little chance the Board will adjust policy settings today, given the recent decline in the AUD, something that brings it more aligned with the fall in terms of trade, and the fact they have mentioned previously the impact the higher currency had on smothering tradable inflation, there is a more than reasonable chance that they’ll up their medium-term inflation view within the policy statement. Elsewhere keep an eye out for their language on China, it may well be softer in light of recent information, along with their assessment on the rebalancing of the domestic economy in the wake of the mining boom.
The ASX 200 looks set to open fractionally higher this morning with SPI futures pointing to a gain of 4pts on the open. While history suggests a ‘no move’ from the RBA will be detrimental to stocks, given it has already been largely priced in and the reality that the sliding Australian Dollar has actually been detrimental to our market, at least in the short-term, don’t be surprised to see the index firm in the afternoon should the RBA stay put as expected.
Following Friday’s rout, the AUDUSD has rebounded strongly overnight with short covering and higher metals prices helping the currency to .9234 this morning. While it is largely expected that the RBA will leave rates unchanged, given short-term short positioning and risks that lie within the Board’s policy statement, it wouldn’t surprise to see the pair continue to push higher over the course of today’s session. Support is found at .9225 and below .9200 with resistance kicking in at .9250 and .9345.
A quiet calendar this evening with US factory orders and revised durable goods orders, Canadian manufacturing PMI, Eurozone PPI, Spanish unemployment change and UK construction PMI the only releases of note. On the Fed front we’ll hear from NY Fed President Dudley, a noted policy dove.