Daily Market Update 18 July 2013 - Data to determine QE departure date

Daily Market Update 18 July 2013 - Data to determine QE departure date

In what was one of the most anticipated market events this year, Ben Bernanke was in action overnight with the Federal Reserve Chairman testifying before the House of Representatives Committee on Financial Services in Washington. Without going into every detail of what he said, you can all read that here, he basically suggested that the FOMC were likely to taper asset buys later in the year with a view to ending purchases altogether by mid-2014 should economic and financial conditions warrant. In other words, while that is their projected pathway, it is by no way set in stone with incoming data, particularly those pieces related to unemployment, to determine the timing and velocity of their exist. Adding clarity to the timing, Bernanke went on to state that an unemployment rate of 7%, unassisted by declining participation, would be a potential catalyst for an end to purchases with a further fall to 6.5% likely to trigger a lift in interest rates should inflation remain well contained.

Corresponding with Bernanke’s testimony in Washington, the Fed also released their latest Beige Book on economic conditions overnight with ‘overall economic activity continu(ing) to increase a modest to moderate pace since their previous survey’. If you’d like to read the document in full, please click here.

As expected, the Bank of Canada left interest rates on hold at 1% overnight. To read the accompanying monetary policy report, please click here.

Scuppering the idea of more near-term stimulus from the Bank of England, minutes of the June MPC meeting were released overnight with members voting 9-0 to keep the key bank rate and gilt purchase program steady at 0.5% and £375bn respectively. While there was some discussion on adding to asset purchases, it was interesting to note that some members believed ‘further purchases could complicate the transition to a more normal monetary policy stance at some point in the future.’

A rare batch of weak housing data was released in the US overnight with building approvals and housing starts falling heavily in June. Approvals, a precursor to housing starts, fell by 7.5% to an annual pace of 911k, the lowest level seen since March 2013. Doubling-down on the bad news, starts plunged by 9.9% to an annual rate of 836k, the lowest number recorded since August 2012, with the result completely offsetting the upwardly-revised 8.9% increase of May.

UK unemployment held steady at 7.8% for a third-consecutive month in May. While that was largely expected, there was some unexpectedly-strong news on the number of persons claiming unemployment benefits with the claimant count falling by 21.2k in June. The result was above the upwardly-revised 16.2k decline of May and well ahead of estimates for a fall of 8k. Topping off the data set, average weekly earnings in the three months to May increased by 1.7% (YoY), a result that was well ahead of expectations for a rise of 1.4%. While an improvement, with annualised CPI running at 2.9%, real weekly earnings continue to dwell well and truly in negative territory.

The Day Ahead (All times AEST)

The ASX 200 looks set to test the hard-to-crack 5000 point level this morning with SPI futures pointing to a rise of 23pts on the open. While recent history suggests that the index will struggle above this level, on what is an otherwise quiet session, should the Chinese house price data out at 11.30am help to boost Chinese equity markets, there’s every chance that the index will be able to close above this level with the assistance of the materials sector.

Having spiked up to .9292 in the immediate aftermath of Bernanke’s testimony being released, the AUDUSD has retreated back to more-familiar ranges this morning with the pair currently sitting at .9232. With no major data scheduled, we expect that it’ll largely consolidate today with the pair likely to operate in a thin band between .9190 and .9252.

The NAB quarterly business survey will be released at 11.30am this morning. On the regional front we’ll receive all-important Chinese house price data for June. Having risen 6.0% on year in May, any sharp increase will no doubt cause skittishness across the markets. The release is scheduled for 11.30am.

Economic data releases this evening include jobless claims, Philadelphia Fed business index and the leading index from the States, Canadian wholesale sales, Swiss trade and UK retail sales. On the policy front Ben Bernanke speaks again this evening, this time before the Senate Banking Committee in Washington, although it’s unlikely that we’ll hear anything new apart from what was delivered overnight.

Google, Microsoft, Morgan Stanley and Verison report Q2 earnings this evening.


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