Daily Market Update 11 October 2013 - Temporary extension, temporary rally?
In news that almost everyone wanted to hear and that financial markets loved, a plan<http://www.bloomberg.com/news/2013-10-10/debt-limit-prospects-gain-as-parties-open-to-short-deal.html> that would see the US government debt ceiling extended by a further six weeks was proposed by House Republicans overnight with the lessened chance of a government default, presuming it is signed off by Democrats, sending risk assets, especially stocks, storming higher over the course of overnight trade. The proposed deal would see the debt ceiling extended for six weeks until November 22 with the Republicans looking to use this time to have further negotiate the US budgetary position. While welcomed by the markets, the plan would see the government remain furloughed over the entirety of this period, something that could well do irreparable damage to the economy given its already-weakened state.
US initial jobless claims soared to the highest level seen in over six months last week with an increase to 374k reported<http://www.dol.gov/opa/media/press/eta/ui/current.htm>. The figure was well above the 308k pace recorded in the previous corresponding week and expectations for an increase to 310k and was the largest week-on-week increase seen since November 2012.
As expected, the Bank of England MPC kept their official bank rate and asset purchase program steady<http://www.bankofengland.co.uk/publications/Pages/news/2013/010.aspx> in October at 0.5% and £375b respectively. Unfortunately for those looking for further clarity behind the decision, we’ll have to wait until the minutes are released on October 23 given the absence of a formal policy statement.
New house prices in Canada inched higher in August with an increase of 0.1% recorded<http://www.statcan.gc.ca/daily-quotidien/131010/dq131010a-eng.pdf>. While the twenty-ninth increase in a row, the result was below both the 0.2% increase of July and, by coincidence, the same rise expected by economists.
French industrial output underwhelmed in August with an increase of 0.2% recorded<http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20131010>. While better than the 0.6% contraction of July, the figure missed expectations for an increase of 0.5% with a 0.3% rise in manufacturing, coupled with gains in construction, transportation and agri-food production, helping to offset sharp declines elsewhere.
Italian industrial production fell for a second-straight month in August with a decline of 0.3% recorded<http://www.istat.it/en/archive/100538>. Although an improvement on the 1% contraction of July, the figure missed expectations for an increase of 0.7% and left production, adjusted for working days, some 4.6% below the same level of a year ago.
Greek unemployment<http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0101/PressReleases/A0101_SJO02_DT_MM_07_2013_01_F_EN.pdf> reversed course in July with the percentage of working age population out of work rising to 27.6%. The result was above the downwardly-revised 27.5% figure of June and the 25% rate of July 2012 with the net number out of work rising by 126,451 from a year earlier. While still an incredibly bad outcome, offering a glimmer of hope that the worst may now be over, the unemployment rate appears to have stabilised recently, albeit at record-high levels. Confirming why unemployment remains at an unacceptable level, in a separate report, industrial output continued to contract sharply in the year to August with a decrease of 7.2% recorded<http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0503/PressReleases/A0503_DKT21_DT_MM_08_2013_01_P_EN.pdf>. While still an ugly outcome, the figure was an improvement on the 7.7% annual decline previously recorded in July.
The Day Ahead (All times AEST)
The ASX 200 looks set to start off where Europe and US stocks left off with SPI futures pointing to a gain of 71pts on the open. While we still get the broad-based gains seen offshore, excluding the gold sector given the spot price copped another shellacking in overnight trade, given our market has outperformed Wall Street for the best past of three weeks, it wouldn’t surprise to see the index print its high for the session early on before easing modestly into the close.
A largely non-eventful session for the AUDUSD overnight, at least compared to other risk assets, with the pair trading in a relatively narrow range between .9415-.9470. Given we have no major data releases scheduled, unless we get some bad news out of Washington, we expect that the pair will continue to grind higher today on the back of improving risk aversion. Support is found at .9440, .9415 and again below .9400 with resistance kicking in at .9470, .9484 and .9510.
Regional data releases today include Japanese corporate goods prices along with the food price index from New Zealand.
Data releases tonight include the University of Michigan/Thomson Reuters consumer survey in the US, Canadian unemployment along with CPI figures from Germany and Italy. Keeping their tradition of non-conformity, China will also release trade data for September on Saturday afternoon.
In what we and many deem to be the true start of the US earnings season, financial heavyweights JP Morgan Chase and Wells Fargo report Q3 results this evening.