Daily Market Update 10 October 2013 - Yellen helps prevent more sellin’

Daily Market Update 10 October 2013 - Yellen helps prevent more sellin’

There has been no budget breakthrough in the US overnight with the government shutdown set to enter its ninth day early this afternoon.


In what was a far closer decision that the markets had first thought, or at least closer than what was immediately communicated following the announcement, the minutes<http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130918.pdf> of the FOMC’s September 17-18 monetary policy meeting were released overnight with ‘most participants view(ing) their economic projections as broadly consistent with a slowing in the pace of the committee’s purchases of longer-term securities this year and the completion of the program in mid-2014’. On the subject of their forward guidance on rates, something the committee have been criticised for following their decision not to taper purchases, the minutes revealed ‘that the postponement of such an announcement to later in the year or beyond could have significant implications for the effectiveness of communications’ and ‘could potentially undermine the credibility or predictability of monetary policy’ or ‘be perceived as a sign that they had turned more pessimistic about the economic outlook’. Despite those concerns, all of which were voiced by markets following the announcement, ‘all members bar one judged that it would be appropriate for more evidence that (economic) progress would be sustained before adjusting the pace of asset purchases’.


US mortgage demand inched higher last week with the MBA mortgage market index increasing 1.3%. Continuing a familiar trend, refinancing, up 2.5%, was able to offset another 0.7% decline in new purchases. Perhaps explaining the ongoing improvement, the average 30-year mortgage rate continued to decline, falling 7bps to 4.42%.


While their order growth might be contracting, German industrial production bounced strongly in September with an increase of 1.4% reported. The figure was above the upwardly-revised 1.1% decline of August and expectations for an increase of 1% with manufacturing output, up 2.1% thanks to a 4.4% jump in capital goods production, entirely responsible for impressive data beat.


UK industrial output fell heavily in August with a decline of 1.1% recorded<http://www.ons.gov.uk/ons/dcp171778_329605.pdf>. The figure missed expectations for an increase of 0.4% and was below the upwardly-revised 0.1% expansion of July with manufacturing, down 1.2% on month, and utilities, -1.9%, the chief catalysts behind the ugly headline miss.


Greek deflationary pressures eased in September with an annualised decline of 1.1% reported<http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0515/PressReleases/A0515_DKT87_DT_MM_09_2013_01_F_EN.pdf>. The figure was below the 1.3% decrease of August which, for the moment, remains the largest annualised contraction in the history of the survey.


The Day Ahead (All times AEST)


 Australian stocks look set to slip this morning after outperforming in yesterday’s session with SPI futures pointing to a fall of 23pts on the open. As has been the case in recent weeks, despite heavy falls in crude, base and precious metals overnight, we expect that initial losses will slowly be whittled away over the course of the trading session. While it will be more influential on rates and currency markets, the labour force statistics out at 11.30am will also have an impact, particularly on the consumer discretionary and financial sectors.


A largely non-eventful session for the AUDUSD overnight with the pair trading within a relatively thin band between .9420-.9464. Thankfully, at least for those craving some direction, the labour force statistics released at 11.30am will likely see this trading range broken, at least based of recent series volatility, with a strong outcome likely to send the pair scurrying back towards key resistance at .9510 while weak result will see it slide back towards .9400, or potentially even lower, following its release. Support is located at .9415-20, .9400 and .9387 with resistance kicking in at .9464, .9484 and again at .9510.


Australian labour force data for September will be released this morning at 11.30am. Economists are looking for an increase in employment of 15k with the unemployment and participation rate holding steady at 5.8% and 65.0% respectively. Given that there was no sharp increase in employment in August, something that usually occurs in the month before a federal election, it wouldn’t surprise to see total employment exceed expectations in September driven by gains in part-time workers.


Regional data releases today include bank lending, machine orders and foreign asset purchases from Japan along with New Zealand business PMI. On the policy front, the Bank of Korea conduct their October monetary policy meeting with their key base rate expected be left unchanged at 2.50%.


Data releases this evening include US initial jobless claims, Canadian new house prices along with industrial output figures from France and Italy. On the monetary policy front, the Bank of England hold their October MPC meeting with no change in either the bank rate or asset purchase plan expected.


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