Daily Market Update 3 September 2013 - Has spring sprung for the global recovery?

Daily Market Update 3 September 2013 - Has spring sprung for the global recovery?

Hot on the heels of China’s hotter-than-expected manufacturing PMI print, European manufacturing activity rose to a fresh multi-year high in August with Markit’s regional PMI gauge soaring to 51.4. The result was higher than both the 50.3 reading of July and ‘flash’ estimate of 51.3 released in late August and was the highest reading seen since June 2011. Offering hope that the current upswing will continue, new orders, a good lead indicator for future activity, also surged, rising to 53.3 from 50.8 in July, the highest level seen since May 2011. Mirroring the improvement in the regional gauge, well accept for France, Germany, Italy and Spain, all impressed with activity also rising to fresh multi-year highs during the month. Germany, Europe’s largest manufacturer, saw their gauge rise to 51.8, down from the 52.0 ‘flash’ estimate but above the 50.3 figure of July, with the reading the highest level seen since June 2011. Mirroring the improvement seen there, Italian activity also rose at a faster pace with their figure printing at 51.3, up from 50.4 in July. In a result that got economists scurrying though their record books, Spanish activity also expanded, the first such occasion since March 2011, with an increase to 51.1 reported. While the news elsewhere was strong, as had been the case when the flash reading was released in August, French activity largely disappointed, holding at 49.7 for a second-consecutive month.

Making the Eurozone figure look almost shabby, UK manufacturing activity surged to the highest level seen since February 2011 in August with Markit’s PMI gauge coming in at 57.2. The reading was miles above both the 54.8 reading of July and expectations for an increase to 55.0 with the new orders subindex soaring to 61.8, the highest level seen since 1994! While undeniably bullish, creating further doubts over the Bank of England’s recently-implemented forward guidance on rates, the input price index rose by 10.4pts during the month, the second-steepest increase in the history of the survey.

The Day Ahead (All times AEST)

The Reserve Bank of Australia will hand down their August monetary policy decision at 2.30pm this afternoon. While there is little doubt that the cash rate will be on hold at 2.50%, we expect that given recent data both at home and overseas, the Board will drop their easing bias in the accompanying monetary policy statement. 

The ASX 200 looks set to surge above the 5200 point level for the first time since May 22 this morning with SPI futures pointing to a rise of 24pts on the open. Having broken out of its short-term trading range yesterday and with base metals prices continuing to surge, it appears likely that the index will test out its 2013 high, 5249.6, in the days ahead should Syrian concerns remain in check.

Aided by higher base metals prices and robust economic data, the AUDUSD climbed briefly above the .9000 level overnight before stretched short-term positioning saw profit-taking into the close. While the pair faces stiff resistance above the .9000 level due to tapering expectations and ongoing concerns surrounding Syria, should the RBA drop their easing bias and sound more confident in their August MP statement as we suspect, it’s likely that the Aussie will venture further north before the day is out. Support starts at .8960-50 and at .8925 with resistance kicking in at .8990, .9013 and again at .9037.

The last of Australia’s Q2 national account inputs arrives this morning with the release of current account, export contribution and government expenditure figures. Along with those releases, markets will also receive retail sales figures for July with a rise of 0.4% expected. Ensuring for a volatile pre-lunch period, all of the data will be released at 11.30am.

Chinese non-manufacturing PMI for August will be released at 11am. Given that this survey tends to correlate closely with the manufacturing PMI gauge, it’s highly likely that the reading will come in above the 54.1 figure of July.

Economic data releases this evening include manufacturing PMI (both ISM and HSBC figures) and construction spending figures from the US, RBC manufacturing PMI from Canada, Swiss GDP, Eurozone producer prices, UK construction PMI and Spanish unemployment change for August.


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