Daily Market Update 15 July 2013 - China to make-or-break our session

Daily Market Update 15 July 2013 - China to make-or-break our session

US consumer sentiment slid in July with the University of Michigan/Thomson Reuters survey falling to 83.9. The result missed expectations for an increase to 85.0 and was below the 84.1 achieved in June. The future, rather than present, was largely behind the decline with a jump in current conditions, up to 99.7 from 93.8, more than offset by a decline in expectations which fell to 73.8 from 77.8 in June. Perhaps explained by higher gas prices, consumer inflation expectations for the year ahead also surged, jumping to 3.3% from 3.0% in June.

US producer price inflation rose strongly in June with an increase of 0.8% reported. The result was well above the 0.5% rise expected by the markets and left the year-on-year increase 0.8% higher than May at 2.5%. Unsurprisingly, higher gas prices were the chief catalyst behind the increase with so-called ‘core’ inflation, that which excludes volatile items such as energy, holding steady at 1.7% on year for a second-consecutive month.

Eurozone industrial production slipped more-than-expected in May with a decrease of 0.3% reported. The figure was below expectations for a decline of 0.2% and left the year-on-year rate at -1.3%. Sharp falls in the production of capital and durable goods, down 1.5% and 2.3% respectively, were more than enough to offset small increases in intermediate and non-durable goods, along with energy output.

Having fallen heavily in the past year, inflation across Italy and Spain reversed course in June with annual increases of 1.4% and 2.1% reported. While still incredibly low, the figures were above the 1.3% and 1.7% rates previously seen in May.

A double-dose of bad news for the Indian economy on Friday with inflation surging while industrial production plunged during the course of May. Having eased in recent months, price pressures were back with a vengeance, in part due to the weaker INR along with higher energy and food costs, with the annual CPI rate surging to 9.87%. The result was above the 9.31% pace previously seen in April and well above the 9.29% rate expected by the markets. Adding to that bad news, industrial output fell heavily in May with an annual decline of 1.6% reported. The result was well off the 1.6% expansion expected by economists with a 2% decrease in manufacturing largely to blame for the disappointing monthly performance.

The Day Ahead (All times AEST)

The Bernanke-inspired rebound on the ASX 200 looks set to continue this morning with SPI futures pointing to a rise of 14pts on the open. While we may start firmer on the back of wafer-thin volumes, the Chinese economic data released at Midday will largely determine how we finish off the session with the materials sector set to run the show one way or another.

Having fallen below 90c briefly on Friday evening, the AUDUSD has opened the new trading week slightly higher with the pair currently fetching .9060. As with the local equity market, the Chinese data will be highly influential today with a weak outcome likely to see support below the 90c level tested. On the flipside, should we get an upside surprise, expect the currency to surge higher on the back of renewed short-covering. Support is found at .9040 and again at .8998 with resistance kicking in at .9071 and .9120. While speculative short positions suggest more upside risk than down heading into the data, should the 90c level go, it’ll likely prompt fresh selling from real-money investors.

Australian new motor vehicle sales for June will be released today at 11.30am.

All eyes will be on China today with the release of Q2 GDP along with monthly reads on industrial production, retail sales and fixed-asset investment. Having logged 7.7% annualised growth in Q1, economists expect that the economy continued to cool in the three months to June with a growth rate of 7.5% expected. While plausible given what we’ve seen in recent months, given data has underperformed expectations, coupled with increased talk about growth being sub-7.5%, the target set for 2013, it appears risks are slanted to the downside heading into the release. While they’ll be lost in the wash generated by the GDP number, keep an eye out on the monthly data releases with economists expecting industrial production, retail sales and fixed-asset investment to log annual increases of 9.1%, 12.9% and 20.2% respectively for June. Ensuring a late lunch for some, the data will hit the screens at Midday AEST.

Economic data releases this evening include retail sales, business inventories and the Empire State manufacturing gauge from the US, Swiss producer prices and wholesale price inflation from India. As you might suspect, the retail sales figure from the US will take centre stage with ‘core’ sales, those which exclude auto, gas and building materials, expected to rise 0.3% after logging the same increase in May.

Citigroup reports Q2 earnings this evening.


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