Daily Market Update 29 August 2013 - Domestic CapEx spend in focus today

Daily Market Update 29 August 2013 - Domestic CapEx spend in focus today

US pending home sales fell for a second-consecutive month in July, the first back-to-back decline seen since August-September 2011, with a decreased of 1.3% recorded<http://www.realtor.org/news-releases/2013/08/july-pending-home-sales-slip>. The result was below market expectations for a fall of 0.5% and was over triple the 0.4% decline previously recorded in June.


US mortgage demand fell for a thirteenth week in fifteen last week with the MBA mortgage market sliding a further 2.5%. Explaining the underwhelming demand, the average 30-yr mortgage continued to surge, rising 12bps to 4.80%, the highest level seen so far this year.


Mark Carney, Governor of the Bank of England, delivered a speech to a business lunch in the East Midlands overnight with the Banks’ recently-initiated forward guidance dominating large parts of his speech. As expected, he noted the somewhat-dismissive reaction from markets to the guidance, telling the audience that they ‘do not intend to consider raising (the bank rate) before unemployment hits 7%’ with the likelihood of unemployment reaching that threshold, as currently priced by markets, just ‘a one in three chance’. To read the speech in full, click here<http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech675.pdf>.


Eurozone private lending continued to contract in July with an annualised decrease of 1.9% reported<http://www.ecb.europa.eu/press/pdf/md/md1307.pdf>. The figure was below the 1.6% pace seen in June, coincidentally the same figure that had been expected by the markets, with the decline the fastest ever seen since records began in 1992.


German consumer confidence fell unexpectedly during September with the forward-looking GfK index<http://www.gfk.com/Documents/Press-Releases/2013/20130828_GfK-Consumer-Climate-Germany-August-2013_efin.pdf> slipping to 6.9. The reading was below both the 7.0 figure of August and expectations for an increase to 7.1 with a sharp rise in buying intentions, up 3.7 points to 44.4, offset by declines in income and economic expectations.


German import prices rose more-than-expected in July with an increase of 0.3% reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/08/PE13_284_614.html>. The figure was slightly higher than the 0.2% rise that had been expected by the markets and left the year-on-year contraction slightly lower at 2.6%


UK retail sales rose strongly in August with the CBI distributive trades survey<http://www.cbi.org.uk/media-centre/press-releases/2013/08/high-street-sales-growth-accelerates-cbi/> rising to +27. The figure was well ahead of both the +17 figure of July and expectations for an increase to +21 and was the highest reading seen since November 2012.


Italian retail sales fell in June with a decrease of 0.1% reported<http://www.istat.it/en/archive/97888>. The figure was below the 0.1% increase previously seen in May and left the year-on-year decline sharply lower at -3.0%.


The Day Ahead (All times AEST)


A plethora of earnings reports for the domestic market to navigate today with Qantas, Westfield Group, Ramsay Healthcare, Perpetual, Paladin Energy and Yellow Brick Road just some of the better-known names that are scheduled to report.


The ASX 200 looks set flat start this morning with SPI futures pointing to a rise of 1pt on the open. While this is understandable given continued geopolitical concerns and slightly lower commodity prices, at least compared to when we closed up yesterday afternoon, given Wall Street finished higher, the proximity to month/quarter-end and the fact that it’s options expiry day, unless we see another bad selloff in EM Asia or an incredibly strong CapEx report at 11.30am, something that’ll further diminish the case for more rate cuts from the RBA, it wouldn’t surprise to see the index eke out a small gain by the end of today’s session.


Having fallen below .8900 for the first since early August in the early parts of trade, the AUDUSD has staged a moderate recovery overnight on the back of the weaker US pending home sales report with the pair pushing up to .8950 before running into selling resistance. In what is a rare occurrence nowadays, domestic events will largely dominate the pairs’ movements today with the Capex report at 11.30am set to move the AUD based on future rate expectations. In what is a pretty simple scenario, should we get a strong rise in the 3rd estimate of 2013/14 spend, the pair will bid on the back of short covering. Conversely, should the estimate be sharply lower than what had been recorded previously, the pair will slide with a test of the August 5 low of .8850 likely to occur soon after. Support is found at .8930, .8890 and .8850 with resistance kicking in at .8950, .8992 and at .9037.


Australian Q2 capital expenditure figures will be released at 11.30am. Economists are looking for a rise of 1% following a 4.7% slump in Q1. Perhaps of more importance, the equipment, plant & machinery component, that which feeds directly into Q2 GDP, is expected to decline by 0.5% after a 3.3% fall in Q1. While that will dictate how the economy performed previously, as is usually the case, most market attention will be on the 3rd estimate for 2013/14 CapEx spend with any substantial deviation from the 2nd estimate of $156.467bn likely to have an immediate and substantial impact across domestic markets.


Regional data releases today include the RBNZ business confidence survey for August along with foreign stock and bond movements from Japan.


Data releases this evening include Q2 GDP and jobless claims from the States, German unemployment and CPI, Italian business confidence, consumer confidence and wage inflation, Spanish GDP and CPI, French industrial investment and business confidence, Swiss non-farm payrolls along with Canadian producer prices.


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