Daily Market Update 16 July 2013 - Domestic matters return to the fore

Daily Market Update 16 July 2013 - Domestic matters return to the fore

Somewhat tapering tapering expectations, US retail sales missed to the downside in June with an increase of 0.4% reported. The result was half the 0.8% rise expected by the markets with May’s 0.6% increase also revised down to +0.5%. Excluding volatile items such as autos, fuel and building products, sales rose just 0.1%, a result that was well down on the +0.3% advance expected by the markets.

Manufacturing activity across the New York state expanded at a faster pace in July with the Empire State index jumping to 9.46. The result was above the 7.84 reading previously achieved in June and well ahead of estimates for a decline to 5.00. Adding to the result, employment, new orders and business conditions out six months all recorded solid improvements over the month.

US business inventories edged higher in May with an increase of 0.1% reported. The result beat expectations for flat growth during the month with April’s 0.3% increase revised down to 0.2%. In a good sign for the economy moving forward, sales rose by an impressive 1.1%, an outcome that suggests production and restocking will have to accelerate to keep up with rampant end-user demand. 

The European Financial Stability Mechanism, or EFSF, was downgraded by ratings agency Fitch to AA+ overnight. The move follows a similar downgrade to France seen on Friday evening.

Swiss producer prices rose modestly in June with an increase of 0.1% reported. The figure was above the -0.3% decline previously seen in May and left the year-on-year pace at just 0.5%. Mirroring overall producer costs, import prices also rose 0.1% with the annualised decline slowing to -0.3%.

Indian wholesale price inflation edged higher in June with the government reporting a year-on-year increase of 4.86%. While below forecasts for an increase of 4.90%, the figure was higher than the 4.70% reading previously seen in May. Of the two main sources of inflation, food and fuel, the former rose to 9.74% while fuel costs subsided to 7.12%.

The Day Ahead (All times AEST)

The ASX 200 looks set to push higher this morning with SPI futures pointing to a rise of 18pts on the open. As opposed to yesterday, domestic matters take centre stage today with the RBA monetary policy minutes, a key driver for the Aussie Dollar and domestic rate outlook, set to dictate direction. While a dovish tone would normally see stocks lift in anticipation of a rate cut and lower AUD, with the offshore investors still skittish by the recent fall in the currency, any strong suggestion that we’ll see a rate cut in August could see stocks follow the lead provided by the Aussie Dollar.

Resembling a game of pong, the AUDUSD has gyrated back and forth overnight as initial selling in Europe was reversed following the release of weak US retail sales data. As mentioned above, the RBA policy minutes will be highly influential on the pair today with an overly-dovish statement set to send the currency hurtling back towards the 90c level. Support is found here and at .9040 with resistance kicking in above .9115, .9152 and again at .9188

The minutes of the RBA’s July 2 monetary policy meeting will be released at 11.30am this morning. Jokes aside, markets will be playing close attention to the language on the inflation outlook, the Australian Dollar along with the Chinese economy. Did they really deliberate for ‘a very long time’ to cut rates at this meeting? If we get an ultra-dovish statement the market will take this remark as more fact than fiction.

New Zealand Q2 CPI will be released at 8.45am. Economists expect price growth of 0.3% for the quarter, a result that’ll leave the annualised increase at a benign +0.8%. While it certainly isn’t a perfect guide for the Australian CPI release, given similarities between the two series of late – non-tradable inflation is running hot while tradable is importing deflation, expect the print to move the domestic rate market along with the Australian Dollar.

A US-centric data calendar this evening with the release of CPI, including real weekly earnings, industrial output and the NAHB homebuilder survey. Elsewhere we’ll also get trade figures from the Eurozone and Italy, CPI figures from the Eurozone and UK, the ZEW survey from Germany along with Canadian manufacturing sales.

Coke, Goldman Sachs, Johnson & Johnson and Yahoo report earnings this evening.


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