Daily Market Update 5 July 2013 - Forward guidance Friday!
Creating an immediate impact like a super-sub off the bench, newly-appointed Bank of England Governor Mark Carney left a lasting impact following the conclusion of his first MPC meeting overnight with words, rather than adjustments to policy, sending markets into a holiday-thinned spin. As had been the case in previous meetings, the committee left the bank rate unchanged at 0.5% along with their asset purchase program which remained steady at £375bn. However, the difference on this occasion came in the wording of their accompanying policy statement<http://www.bankofengland.co.uk/publications/Pages/news/2013/007.aspx> with members noting that despite recent data being broadly consistent with their outlook for growth and inflation, in their view ‘the implied rise in the expected future path of Bank Rate was not warranted by recent developments in the domestic economy’. In those words the MPC effectively told the market that they had got ahead of themselves with the recent surge in yields likely to weigh on what is an already-weak economy should they persist. As mentioned previously, the words had the desired effect, at least from an economic perspective, with the Pound falling by more than 1% against a basket of currencies, the FTSE climbing 3.08% while yields on the benchmark 10-year gilts fell 2bps to 2.38%. While only early in his tenor, you’d have to give Carney full marks for his opening performance.
As expected, the ECB<http://www.ecb.int/press/pr/date/2013/html/pr130704.en.html> held their key refinancing rate steady at 0.5% overnight. Not to be outdone by his compatriot across the Channel, ECB President Mario Draghi also used words to get his desired market reaction, taking the unprecedented step of making a forward commitment on policy during his accompanying press conference<http://www.ecb.int/press/pressconf/2013/html/is130704.en.html>. In what many had been speculating on prior to the meeting, Draghi told reporters that the ECB’s monetary stance ‘will remain accommodative for as long as needed’, adding that it does not mean ‘6 months, not 12 months - it’s an extended period’. He went on to say that the decision to provide a guidance was ‘unanimous’ within the council with members also holding ‘extensive’ discussions on cutting interest rates, including deposit rates. While he dismissed idea of using the Euro rate as a potential policy target, the words were enough to get the desired effect with all bar the GBP strengthening against the Euro following the announcement.
UK house prices continued to rebound in June with the Halifax house price index<http://www.lloydsbankinggroup.com/media1/press_releases/2013_press_releases/halifax/040713_HPI.asp> rising 0.6%. The result was stronger than the 0.4% gain that had been expected by the markets and left the 3-month rolling average 3.7% higher than the same period a year ago.
The Day Ahead (All times AEST)
Following the inspired lead of European markets overnight, the ASX 200 looks set to end the week firmly in the black with SPI futures pointing to a rise of 35pts on the open. While the index will no doubt surge early in the session, we expect gains to ‘taper’ later in the day as investors position themselves before NFP this evening.
A strong session for the Aussie Dollar overnight with the AUDUSD remaining well bid despite rampant USD strength seen elsewhere. Given the sharp USD moves last night, coupled with the fact the Aussie is net short-term short at present, we expect the pair to push higher today with traders likely to take advantage of thin market conditions to encourage short covering before NFP this evening. Resistance starts at .9145 and again at .9180 with a break of the latter opening up a move back to .9254. On the downside expect any dip towards .9120 to be met with solid buying interest.
The AIG Performance of Construction index for June will be released this morning at 9.30am. On the regional front we’ll receive the Japanese leading index along with Taiwanese CPI.
US non-farm payrolls for June will be released this evening at 10.30pm. Economists expect the economy to have generated 165k jobs, down from the 175k clip of May, with unemployment expected to edge lower to 7.5%. Elsewhere weekly earnings are expected to rise 0.2% after coming in flat in May with the average workweek holding steady at 34.5 hours. As always, keep an eye on any revisions to prior data, often they override the current data if vastly different to what was reported previously.
Aside from payrolls markets will also have to digest Canadian unemployment, a series that makes Australia’s unemployment data look benign, German industrial orders, Spanish industrial output, French trade and Swiss CPI.