Daily Market Update 31 July 2013 - The calm before the FOMC storm…

Daily Market Update 31 July 2013 - The calm before the FOMC storm…

US metropolitan house prices continued rise in May, albeit at a slower pace, with the CaseShiller index<https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/19529_cshomeprice-release-0730.pdf?force_download=true> increasing by 1.0%. The result was below both the 1.7% rise of April and expectations for an increase of 1.5% and left the annualised advance at a 7-year high of 12.2%.




US consumer confidence fell more than expected during July with a decline to 80.3 reported<http://www.conference-board.org/data/consumerconfidence.cfm>. The figure was below both the upwardly-revised 82.1 reading of June and expectations for a decrease to 81.4 and came despite the present situation index hitting the highest level seen since May 2008.




Eurozone economic sentiment rose to the highest level since April 2012 in July with the European Commission index<http://ec.europa.eu/economy_finance/db_indicators/surveys/> rising to 92.5. While below estimates for an increase to 92.6, the result was ahead of the 91.3 reading previously seen in June. Mirroring the move seen there, consumer sentiment also increased, rising to -17.4 from -18.8 in June. Despite only matching expectations, the figure was the highest level seen since August 2011.




German consumer confidence rose to the highest level seen since September 2009 in August with the forward-looking GfK index<http://www.gfk.com/Documents/Press-Releases/2013/20130730_GfK-Consumer-Climate-Germany-efin.pdf> coming in at +7.0. The reading was above both the +6.8 figure of July and expectations for an increase to +6.9.




Spain’s economy continued to contract in Q2, barely, with the government reporting<http://www.ine.es/en/prensa/cntr0213a_en.pdf> a decline of 0.1%. The result was in line with market expectations with the year-on-year decline improving to -1.7%.




German CPI rose strongly in July with an increase of 0.5% reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/07/PE13_254_611.html;jsessionid=30F6942379084C97BB42205E2B1996AA.cae2>. The result was near-double the 0.3% rise that had been expected by economists and left the year-on-year rate unchanged at 1.9%. In a separate report, Spanish CPI<http://www.ine.es/en/daco/daco42/daco4218/ipce0713_en.pdf> rose by 1.9% in the year to July, a result that was below the 2.2% pace previously seen in June.




Canadian producer price inflation ticked higher during June with an increase of 0.3% reported. The result was higher than the flat reading expected by economists and left the year-on-year increase moderately higher at 0.6%.




The Reserve Bank of India kept monetary policy steady in July with the repo, reverse repo and cash reserve rate remaining at 7.25%, 6.25% and 4.0% respectively. To read the accompanying monetary policy statement click here<http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29192>.





The Day Ahead (All times AEST)


The ASX 200 looks set to end July with modest gains with SPI futures pointing to an increase of 7pts on the open. Despite heavy losses in base metals prices overnight, given the materials sector has outperformed over the month, it’s unlikely that it’ll drag too much on the index today given likely window-dressing.




Having nosedived yesterday following weak building approvals and dovish language from RBA Governor Glenn Stevens, the AUDUSD has stabilised overnight with the pair trading in a thin range between .9045 and .9101. With far bigger events ahead, we expect much of the same today as participants bide their time before the FOMC meeting later on this evening. Support is found at .9050 and .9000 with selling likely to resume on any attempt above the .9100 level.




Australian private sector credit data for June will be released at 11.30am. Markets are looking for a now-customary increase of 0.3%.




Regional releases today include manufacturing PMI, construction orders and housing starts from Japan, NBNZ business survey in New Zealand along with Taiwan Q2 GDP.




The US Federal Reserve’s FOMC will hand down their July monetary policy decision at 4am tomorrow morning. While they’ll keep rates unchanged at 0-0.25% and their asset purchase program steady at $85bn per month, all attention will be on the accompanying monetary policy statement with market participants set to scour the document for any clues as to when the committee intend to taper asset purchases. While many believe the FOMC will outline the prospect of near-term tapering, with unemployment holding steady at unacceptably-high levels and inflation half the level targeted, it wouldn’t surprise to see them maintain their dovish bias until they next meet on September 17-18.




Aside from the FOMC decision, markets will also have to navigate their way through Q2 GDP, ADP employment, Chicago PMI and MBA mortgage market index in the US, unemployment data from the Eurozone, Germany and Italy, CPI from the Eurozone and Italy, German retail sales, French consumer spending along with Canadian GDP.



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