Daily Market Update 1 October 2013 - US government shutdown set to begin

Daily Market Update 1 October 2013 - US government shutdown set to begin

The US government looks set to go into partial shutdown later on this afternoon with the Senate rejecting<http://www.nytimes.com/2013/10/01/us/politics/congress-shutdown-debate.html?_r=0> an amended bill from the House that would have funded the government through to mid-December. While there is still a slim chance that a deal will be struck, it’s looking increasingly-certain that non-essential areas, including those that produce economic data releases, will be on hiatus until the budget impasse can be overcome.


Manufacturing activity across Chicago and surrounds rose fractionally in August with the Chicago Fed index<http://www.chicagofed.org/digital_assets/publications/cfmmi/2013/cfmmi_august_2013.pdf> rising to 96.7. The reading was marginally above the 95.4 figure of July with a 4.1% lift in auto production doing most of the heavy lifting. Mirroring the improvement seen there, Chicago PMI, a separate report produced by the ISM, expanded strongly in September with an increase to 55.7 recorded<https://www.ism-chicago.org/chapters/ism-ismchicago/files/mni_chicago_press_release_2013-09.pdf>. The figure was well ahead of the 53.0 reading of August and expectations for an increase to 54.0 with strong gains in production and orders helping to offset a slowdown in employment.


Manufacturing activity across Texas expanded at a faster pace in September with the Dallas Fed manufacturing survey<http://www.dallasfed.org/microsites/research/surveys/tmos/2013/1309/tmos1309.pdf> rising to 12.8. The result was higher than the 5.0 reading previously seen in August and was the highest level seen since February 2012.


Canadian GDP bounced strongly in July after a sharp fall in June with an increase of 0.6% reported<http://www.statcan.gc.ca/daily-quotidien/130930/dq130930a-eng.pdf>. The figure was fractionally above expectations for an increase of 0.5% and completely offset the 0.5% decline previously reported in June.


Canadian producer prices inched higher in August with an increase of 0.2% recorded<http://www.statcan.gc.ca/daily-quotidien/130930/dq130930b-eng.pdf>. The figure was in line with expectations and slightly cooler than the 0.3% rise of July and left the year-on-year increase 0.3% higher at +1.7%.


Eurozone inflation rose at the slowest pace seen since February 2010 in September with a year-on-year increase of 1.1% reported<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-30092013-AP/EN/2-30092013-AP-EN.PDF>. The figure was below the 1.3% pace of August and expectations for a decrease to 1.2% with lower energy prices, down 0.9% from a year earlier, largely responsible for the ongoing slide.


Italian CPI contracted in September with a decrease of 0.3% reported<http://www.istat.it/en/archive/99620>. The result was below expectations for a decline of 0.1% and left the annualised increase at 0.9% from 1.2% in August.


German retail sales bounced modestly in August with an increase of 0.5% reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/09/PE13_325_45212.html;jsessionid=6905D6837F53A864FB3CFBB55239506A.cae3>. While an improvement on the upwardly-revised 0.2% decline of July, the result was below expectations for an increase of 0.8% and left the annualised rate sharply lower at +0.3%. While that was a reasonable result, demonstrating the economic divergence that exists between the two nations, Greek<http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0508/PressReleases/A0508_DKT39_DT_MM_07_2013_01_F_EN.pdf> retail sales fell 14.0% in the year to July, down on the 8% contraction previously recorded in June.


French producer prices continued to push higher in August with an increase of 0.3% reported<http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130930>. Despite coming on the back of a 0.7% rise in July, the year-on-year rate held in negative territory at -0.4%. Elsewhere Italian producer prices<http://www.istat.it/en/archive/99595> rose by a benign 0.2% in August with the annualised decrease steepening to -2.0% from -1.3% in July.


UK consumer credit expanded modestly in August with the Bank of England reporting<http://www.bankofengland.co.uk/statistics/documents/mc/2013/aug/moneyandcredit.pdf> an increase of £600m. The figure matched the £600m increase previously recorded in July, subsequently the same number expected by the markets, and was the twelfth-consecutive month that an increase had occurred. While that figure was in line with expectations, as you might expect given recent housing-related data, new mortgage lending beat expectations, up by £1bn following an upwardly-revised £0.8m increase in July, with the number of new approvals also rising by 1,312 to 62,226.


The Day Ahead (All times AEST)

Chinese markets are closed for National Day celebrations.


Despite ongoing concerns surrounding the political situation in the US and Italy, the ASX 200 looks set to open higher this morning, at least according to futures markets, with SPI pointing to a rise of 5pts on the open. Despite what futures are suggesting, given all of the turmoil seen offshore at present, you’d expect we’d need to see China PMI outperform along with a dovish RBA statement, or some positive news on the US budget front, in order to see the index finish in positive territory today.


The AUDUSD has been modestly bid overnight with the pair touching a high of .9355 before easing into the close. Given we have China PMI, domestic retail sales and the RBA October monetary policy decision released today, expect the pair to endure a volatile session throughout. Support starts at .9317, .9300 and .9280 with resistance found at .9355, .9368 and above .9400.


The RBA announce their October monetary policy decision at 2.30pm this afternoon. While there’s little chance that they’ll adjust settings, cash rate futures put the odds of a 25bps cut at just 6%, all eyes will be on the accompanying policy statement with market participants likely to pay close attention to their language on house prices, the inflation outlook, the level of the Aussie Dollar and the wording in the final paragraph. While they could surprise, given information received since they last met, we expect that the statement will read as neutral as neutral can be it when it hits the screens at 2.30pm.


Aside from the RBA decision, domestic data releases today include August retail sales, the AIG manufacturing PMI gauge for September along with the RBA commodity price index, also for September. Given its importance to economic growth, most attention will be on the retail sales print with an increase of 0.3% expected. The PMI gauge will be released at 9.30am, retail sales at 11.30am with the commodity price index due at 4.30pm.


Chinese manufacturing PMI for September will be released at 11am. Economists are looking for an increase to 51.5 after printing at 51.0 in August. Elsewhere we’ll also receive the Q3 tankan report, unemployment and household spending figures from Japan along with CPI and trade numbers from South Korea. On the policy front Shinzo Abe, Japan’s PM, is expected to outline new fiscal reforms, namely an increase in sales tax and subsequent stimulus package, during the course of today’s session.


Manufacturing PMI gauges continue to dominate the data calendar this evening with readings from the US, Europe and UK all schedule for release. Elsewhere we’ll also receive unemployment figures from the Eurozone, Germany and Italy along with US construction spending for August (pending the US budget being passed).


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