Daily Market Update 24 September 2013 - All quiet except on the Fed front

Daily Market Update 24 September 2013 - All quiet except on the Fed front

Mirroring the divergent views expressed on Friday evening, three US Federal Reserve committee members were in action overnight with William Dudley, President of the New York Fed, Dennis Lockhart, Atlanta Fed President and Richard Fisher, President of the Dallas Fed, all presenting differing opinions on tapering and the strength of the US economy. Speaking in New York, Dudley suggested the economy is not strong enough yet for the Fed to taper asset purchases with ‘very accommodative’ policy needed to forcefully push against economic headwinds. Crucially, at least as part of their forward guidance on rates, he also suggested that it could take a considerable time before an unemployment rate of 6.5% could be reached, something that could further delay an increase in the Fed funds rate. Reflecting similar tones to his New York counterpart, Lockhart, also speaking in New York, suggested that the current unemployment rate doesn’t capture the full labour market picture with ‘a way to go’ before the Fed can claim they’ve fulfilled their maximum employment mandate. While they were singing from the same hymn book, Fisher, speaking from San Antonio, stated that he argued for a reduction in bond buying of $10b in September and that the decision not to taper had been ‘very close and tough’. He also suggested that treasury purchases had not been effective in motivating new hiring and that their recent communications on guidance had been ‘a little off’.


US manufacturing activity expanded at a slower-than-expected pace in September with Markit’s flash PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/77970ab4c59744eab5404ffa49d76d36> dropping to 52.8. The result was below the 53.1 reading of August and expectations for an increase to 54.0.


Mario Draghi, ECB President, spoke before the Committee on Economic and Monetary Affairs of the European parliament overnight. To read his speech in full, including his discussion on the introduction of a new round of LTRO financing, click here<http://www.ecb.europa.eu/press/key/date/2013/html/sp130923.en.html>.


Mixed news out of the Eurozone overnight with a strong bounce in service sector PMI<http://www.markiteconomics.com/Survey/PressRelease.mvc/7df638bee72d478ca163b5c1c1191887> offset by a weaker-than-expected read on manufacturing activity. Having printed at 50.7 in August, Markit’s ‘flash’ services PMI hit a 27-month high in September with an increase to 52.1 reported. The figure was well above the 51.1 reading expected by the markets with Germany<http://www.markiteconomics.com/Survey/PressRelease.mvc/1083375a48d14308ac0a5540380ae7cf> and France<http://www.markiteconomics.com/Survey/PressRelease.mvc/9dfafe81d70346a4bfc1751da0912d28>, the largest economies within the Eurozone, seeing their indices rise to 54.4 and 50.7 respectively. While services PMI expanded strongly, there was disappointing news on the manufacturing front with the regional PMI gauge falling unexpectedly to 51.1. While still in expansionary territory, the result was below the 51.4 reading of August and expectations for an increase to 51.8. Mirroring the regional decline, German activity slowed to 51.3, below expectations for an increase to 52.2, while France saw activity contract at a faster pace with their gauge slipping to 49.5 from 49.7 in August.


Italian wage inflation remained subdued in August with flat growth recorded<http://www.istat.it/en/archive/99304> over the month. The result missed expectations for an increase of 0.1% and left the annualised rate unchanged at +1.5%.

The Day Ahead (All times AEST)


The ASX 200 looks set to fall for a third-straight session today with SPI futures pointing to a decline of 28pts on the open. With no major data releases scheduled and minute volumes expected, we expect a lacklustre session throughout.


The AUDUSD has continued to push higher overnight with the pair hitting a high of .9457 before easing into the close. As is the case with equities, with no major data scheduled either at home or abroad, range trading is favoured over the course of the Asian session. Support is found at .9410 and .9380 with resistance kicking in at .9457 and again at .9510.


Economic data releases this evening include consumer confidence, Case-Shiller house prices and Richmond Fed manufacturing index in the States, retail sales from Canada, German business confidence along with Italian international trade. On the ‘Fed speak’ front we’ll also hear from members Pianalto and George.


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