Daily Market Update 2 August 2013 - Strong US data as we head into NFP
US initial jobless claims fell heavily last week with a decline to 326k reported<http://www.dol.gov/opa/media/press/eta/ui/current.htm>. The result smashed expectations for an increase to 345k and was the lowest level seen since early 2008.
US manufacturing activity accelerated strongly in July with the ISM PMI gauge<http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942> rising to 54.4. The reading was far stronger than the 50.9 figure previously seen in June and expectations for an increase to 52.0 and was the highest level seen since June 2011. Complementing the ISM number, Markit also reported an acceleration in activity with their PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/37ac7bf07d1d423bb8c53ef451373170> rising to 53.7 from 51.9 in June.
US construction spending fell unexpectedly in the year to June with a decline of 0.6% reported<http://www.census.gov/construction/c30/pdf/release.pdf>. The figure was below expectations for an increase of 0.4% with May’s 0.5% gain revised up to an increase of 1.1%.
The European Central Bank (ECB) held monetary policy steady for a third-consecutive meeting in August with the refinancing rate remaining at 0.5%. In contrast to what we’ve seen since he took the reins of the ECB back in November 2011, Mario Draghi delivered a largely non-eventful press conference, telling journalists that ‘economic activity should stabilise and recover at a slow pace‘ although risks to the ‘outlook continue to be on the downside’. For those with an interest, you can find his entire monetary policy statement here<http://www.ecb.int/press/pressconf/2013/html/is130801.en.html>.
The Bank of England held monetary policy steady in August with the bank rate and asset purchases remaining at 0.5% and £375b respectively. Creating an anticlimax of sorts, there was no monetary policy statement released alongside the decision with the committee simply stating<http://www.bankofengland.co.uk/publications/Pages/news/2013/008.aspx> that they will provide further details on thresholds and forward guidance in their August 7 inflation report.
Canadian manufacturing activity continued to expand in July, albeit at a slower pace, with the RBC PMI gauge slipping to 52.0. The reading was down on the 52.4 figure previously seen in June and was the lowest level seen since April 2013.
Eurozone manufacturing activity expanded at a faster pace than first estimated in July with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/9ea9b5e21c5642c3a4c4894546102f47> rising to 50.3. The result was higher than the 50.1 ‘flash’ estimate released midway through July and the 48.8 reading of June and was the highest level seen in over two years. Of the ‘Big four’, Germany<http://www.markiteconomics.com/Survey/PressRelease.mvc/c17b2ae1bc9b420189c254061bf6a045>, France<http://www.markiteconomics.com/Survey/PressRelease.mvc/e26a4ad0796b42ac96c0c345d8d518c0>, Italy<http://www.markiteconomics.com/Survey/PressRelease.mvc/a32a5ae7763342d280c903358a424ade> and Spain<http://www.markiteconomics.com/Survey/PressRelease.mvc/d579d89fde754213a6c212c33c8a9b2a>, both Germany and Italy returned to growth with scores of 50.7 and 50.4 while France and Italy fell just short with increases to 49.7 and 49.8. While still a tentative recovery, the overwhelming theme from these forward-looking indicators is that the Eurozone economy is likely to return to growth, perhaps as early as the third quarter.
Making the Eurozone reading look almost poor, UK manufacturing activity surged in July with their national PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/8b3b3e48988142f1a9c4a6c6491e6f4d> rising to 54.6. The reading was well above both the upwardly-revised 52.9 figure of June and expectations for an increase to 52.8 with the gauge now sitting at the highest level seen since March 2011.
The Day Ahead (All times AEST)
The ASX 200 looks set to end the week on a strong note with SPI futures pointing to a rise of 41pts on the open.
The AUDUSD has continued to slide overnight with the pair touching a low of .8908 before steadying into the close. While the market remains well short-term short into NFP, if there is any attempt to squeeze the pair higher, it’ll likely be met with further solid selling pressure. Support starts at .8915 and .8900 with resistance kicking in at .8940 and again at .899.
Australian Q2 producer price inflation will be released at 11.30am this morning.
US non-farm payrolls data for July will be released at 10.30pm this evening. Markets are looking for job creation of 184k for the month with unemployment expected to fall to 7.5%. Elsewhere the average workweek is expected to hold steady at 34.5 hours with hourly earnings likely to inch higher by 0.2%. As ever, keep a look out for any revisions to prior data, often they’re more influential than the current data itself. While the ADP report is a volatile lead-indicator for likely payrolls growth, given that it has understated private payrolls growth every month since February by an average margin of 54k, if there are any risks heading into the NFP release they’re clearly biased to the upside.
Aside from the payrolls data, markets will also have to digest PCE price inflation and consumption, the NY ISM, revised durable goods orders and factory orders from the States, Eurozone producer prices, Spanish unemployment along with the Nationwide house price index and construction PMI from the UK.