Daily Market Update 25 July 2013 - Data stirs up tapering debut debate

Daily Market Update 25 July 2013 - Data stirs up tapering debut debate

Explaining the surge in homebuilder confidence seen last week, US new home sales rose at the fastest pace in over 5 years in June with an annualised rate of 497,000 recorded. The 8.3% increase was well ahead of estimates for a rise to 482,000 and some 38,000 more than downwardly-revised 459,000 pace of May.


US manufacturing activity expanded at a faster-than-expected rate throughout July with Markit’s PMI gauge rising to 53.2. The result was ahead of both the 51.9 reading of June and expectations for an increase to 52.5 and was the highest level seen since March this year. Importantly for the health of the labour market, and coincidentally the likelihood of near-term tapering from the Fed, the employment subindex rose to 52.6 after contracting unexpectedly in June.


Continuing a slide initiated in early June, US mortgage applications continued to skid last week with a fall of 1.3% reported. The result came despite falling lending rates with the average benchmark 30-year mortgage rate falling 10bps to 4.58%.


Eurozone manufacturing activity expanded for the first time since February 2012 in July with Markit’s flash PMI gauge jumping to 50.1. The result was far stronger than both the 48.8 reading of June and expectations for a rise to 49.1 with Germany and France, the two largest economies within the currency bloc, seeing their gauges rise to 50.3 and 49.8 respectively. Nearly matching the read on manufacturing, Eurozone services PMI also jumped, rising to 49.6 from 48.3 in June. The result was well ahead of estimates for a reading of 48.7 with Germany yet again leading the charge with an increase to 52.5 reported. Putting the two gauges together, the Eurozone composite PMI rose to 50.4, a reading that suggests the economy is likely to expand in the latter parts of the year.


Italian retail sales inched higher in May with an increase of 0.1% reported. The result helped offset the 0.1% fall of April and saw the year-on-year rate improve to -1.1% 


UK industrial orders improved modestly in July with the CBI survey rising to -12. The result beat expectations for a reading of -15 and was sharp improvement on the -18 figure of June and was the highest level seen since December 2012.


As expected, the Reserve Bank of New Zealand held interest rates steady at 2.50% this morning. The view the accompanying monetary policy statement, click here.


The Day Ahead (All times AEST)

The ASX 200 look set to post modest gains this morning with SPI futures pointing to a rise of 6pts on the open. While SPI is optimistic, perhaps explained by continued talk over new stimulus programs being announced by China, with base metals mixed and energy and precious metals off hard, it wouldn’t surprise to profit-taking emerge given the stellar run of late.


Having traded as high as .9317 following the release of CPI yesterday, the AUDUSD has been thumped lower overnight with weak data from China, coupled with strong data prints from the Eurozone and US, seeing the pair tumble to .9133 before staggering into the close. With a fairly sparse economic calendar awaiting us today, we expect that the currency will range trade as traders bide their time before bigger data events later in the evening. Support is found between .9120-33 with resistance kicking in at .9190 and again at .9235.  


South Korea, Australia’s fourth-largest trading partner, will release advanced Q2 GDP at 9am this morning. Economists expect growth of 0.8% with the year-on-year rate rising to 2.0%.


Economic data releases this evening include durable goods orders, jobless claims and the Kansas City Fed manufacturing index from the States, preliminary Q2 GDP and Nationwide house price index from the UK, Eurozone private lending, the IFO survey from Germany, Spanish unemployment along with Italian consumer confidence.


A massive night on the US Q2 earnings front this evening with 3M, Amazon, Colgate-Palmolive, Coca-Cola, GM, Hershey’s, Harley-Davidson, Starbucks, Xerox and Zynga just some of the better-known names scheduled to report.


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