Daily Market Update 18 September 2013 - After all the talk, will the Fed walk the walk?
US CPI rose fractionally in August with an increase of 0.1% reported<http://www.bls.gov/news.release/pdf/cpi.pdf>. The figure missed expectations for a rise of 0.2% and left the year-on-year increase 0.5% lower than July at +1.5%. Mirroring the rise in the headline rate, core CPI, that which excludes volatile items such as food and fuel, also increased by 0.1% with the annualised figure ticking up to +1.8% from +1.7% in July. While only partly offsetting July’s 0.5% decline, the benign result, coupled with higher hourly wages and increased hours worked, saw real weekly earnings<http://www.bls.gov/news.release/pdf/realer.pdf> rise by 0.4%, four-times the increase expected.
US homebuilder confidence held steady in September with the NAHB housing market index<http://www.nahb.org/news_details.aspx?sectionID=134&newsID=16450> coming in at 58. While below expectations for an increase to 59, the figure was the same as the downwardly-revised 58 reading of June and remains at levels not seen since late 2005.
German investor sentiment surged in September with the ZEW survey<http://www.zew.de/en/presse/2429> rising to 49.6. The reading was well ahead of both the 42.0 figure of August and expectations for an increase to 46.0 and was the highest level seen since April 2010. Mirroring the surge in sentiment, current conditions also advanced, rising to a 16-month high of 30.6 from 18.3 in August.
UK CPI rose less-than-expected in August with the ONS reporting<http://www.ons.gov.uk/ons/dcp171778_323760.pdf> an increase of 0.4%. The figure was below the 0.5% rise that had been expected by the markets and left the year-on-year rate slightly lower at +2.7%. In a sign that inflation may head back towards the Bank of England’s 2% target in the months ahead, producer output prices rose by 0.1%, a rate that left the annualised increase at a benign +1.6%.
The Eurozone trade surplus widened in July with an increase to €18.2b reported. The result was higher than both the €13.9b surplus of July 2012 and downwardly-revised €16.5b figure of June with a 3% rise in exports, coupled with flat import growth on month, behind the continued expansion.
The Day Ahead (All times AEST)
The ASX 200 looks set to eke out a gain this morning with SPI futures pointing to a rise of 9pts on the open. Given we have little in the way of market-moving events until this evening, we expect volumes to be thin with the added risk of profit-taking given the indices stellar run of late.
The AUDUSD continued to push higher overnight, largely on expectations that the Fed will only announce a small ‘taper’ this evening, with the pair touching a high of .9366 before easing into the close. Support starts at .9350, .9320 and again at .9290 with resistance kicking in at .9361, .9366 and .9390.
The Westpac leading index for July will be released at 10.30am. On the regional front we’ll also receive New Zealand Q2 current account along with Chinese house prices for August.
The US FOMC September monetary policy decision will be released at 4am tomorrow morning. Given that committee members have been pre-conditioning markets for a reduction in asset purchases for months, we would find it highly unusual if we don’t see a tentative reduction, say $10-15b, at the conclusion of this meeting. While such an outcome will have very little impact, it’s all but priced into markets, it will be interesting to see what Chairman Ben Bernanke will have to say when he addresses the media 30 minutes after the policy announcement. While we don’t believe he’ll make any changes to the FOMC’s forward guidance when it comes to inflation, given unemployment has continued to fall since they last met in August, something entirely due to falling participation rather than robust job creation, it wouldn’t surprise to see them tweak their guidance on labour market strength away from an unemployment-linked figure to something aligned to payrolls growth, perhaps the average monthly gain achieved over a rolling three-month period. While this could see the committee lose some credibility as it’s ‘moving the goal posts’ on guidance, it’s clear from recent data that the unemployment rate is not the best measure to use when it comes to gauging labour market strength.
Before the excitement of the FOMC policy decision, markets will also have to digest housing starts, building permits and the MBA mortgage market index from the States along with the minutes of the Bank of England’s September monetary policy meeting.