Daily Market Update 3 October 2013 - ECB stays put, ‘substitute’ NFP miss

Daily Market Update 3 October 2013 - ECB stays put, ‘substitute’ NFP miss

As expected, the European Central Bank (ECB) kept their key refinancing and deposit rates steady<http://www.ecb.europa.eu/press/pr/date/2013/html/pr131002.en.html> at 0.5% and 0.0% during their October monetary policy meeting. While that was a near-certainty, given many governing council members had been priming markets for the introduction of a new LTRO leading into the meeting, President Mario Draghi surprised many in his accompanying press conference<http://www.ecb.europa.eu/press/pressconf/2013/html/is131002.en.html>, maintaining the status quo from his September meeting by only reaffirming that they are ‘ready to use all available instruments, including a LTRO, to ensure developments in short-term money market rates are in line with our medium-term assessment of price stability’. While he again admitted that they discussed lowering the refinancing rate, given that medium-term inflation risks remained ‘broadly balanced’, something that many thought would be downgraded in light of recent price developments, it all but explains the reasons why there was no change in policy stance.


Avoiding the prospect of fresh elections only 5 months after the current government was formed, Silvio Berlusconi and his PdL party backed current Prime Minister Enrico Letta in a confidence<http://www.ft.com/intl/cms/s/0/f61b673e-2b38-11e3-a1b7-00144feab7de.html?siteedition=uk> vote held in Rome overnight. While the move brings to an end a tumultuous period for Italian politics, given their final decision only arrived at the last possible moment, one suspects there’ll be more to this story, including Berlusconi’s expulsion vote on Friday evening, to come in the weeks and months ahead.


In what many were dubbing a non-farm payrolls ‘substitute’ in light of the ongoing US government shutdown, US private-sector hiring rose modestly in September with the ADP national employment report<http://www.adpemploymentreport.com/2013/September/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-September2013-Final-Press-Release.pdf> increasing to +166k. While below expectations for an increase of +180k, the result was higher than the downwardly-revised +159k pace of August and was the highest figure seen since June this year.


US mortgage demand slipped last week with the MBA mortgage market index falling -0.4%. Reverting to the pattern seen in recent months, refinancing did all of the heavy lifting, +3.1%, while mortgages for new purchases fell by 5.6%. In what is somewhat of an anomaly, the decline came despite the average 30-year mortgage rate falling 13bps to 4.49% during the week.


Business activity across the New York State expanded at a slower pace in September with the ISM business conditions index<http://www.ismny.org/newsimages/ISM-New%20York%20Report%20on%20Business%20-%20September%202013.pdf> falling to 53.6. The result was below the 60.5 reading previously seen in August with sharp falls in purchasing volumes, revenues and employment subindices largely responsible for the headline data miss.


Spanish unemployment rose for the first month in seven in August with an increase of 25,572 recorded. The figure was 0.5% above the level of July and left the total number out of work at 4.7m.


UK construction activity continued to expand in September, albeit at a fractionally slower rate, with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/94a72c8c1f804b509dd25399a0bd1187> falling to 58.9. While still head-and-shoulders above similar surveys elsewhere, the result was below the 59.1 reading of August and expectations for an increase to 59.2.

The Day Ahead (All times AEST)


Chinese markets remain closed for National Day celebrations.


The ASX 200 looks set to push aside ongoing troubles offshore, at least according to the futures markets, with SPI currently pointing to a rise of 11pts on the open. While the gold, materials and energy sectors will likely outperform today in light of sharp gains across the commodities complex overnight, given that the US budget impasse appears no closer to being resolved, one suspect that a flat-to-lower finish is on the cards in the absence of any positive breaking news out of Washington.


The AUDUSD has pushed higher overnight on the back of broad-based USD weakness with the pair currently buying .9380. With no major data scheduled during the Asia session, the pairs’ movements will yet again be determined by headlines emanating from the US. Support is found at .9380, .9355 and .9340 with resistance kicking in at .9395, .9410 and at .9430.


Australia’s AIG Performance of services index for September is released at 9.30am this morning.


Regional data releases today include Chinese non-manufacturing PMI for September along with foreign stock and bond flows from Japan.


A disjointed economic data calendar arrives this evening with many releases in the US impacted by the ongoing government shutdown.  Those that will be released include ISM non-manufacturing PMI and the Challenger layoffs series for September. Pending a budget breakthrough, we’ll also receive jobless claims, factory orders along with revised durable goods orders for August. Earlier in the session we’ll also receive a raft of services PMI’s from Europe along with Eurozone retail sales. Topping off what is an already-busy schedule, FOMC members Williams, Lockhart, Fisher and Powell are also scheduled to speak.



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