Daily Market Update 15 October 2013 - Two weeks down, two days to go
With the government shutdown now in its third week and with only two days left until temporary measures to avoid hitting the national debt ceiling are exhausted, progress on the US budget negotiations has seemingly occurred overnight with Republican and Democrat leaders in the Senate hinting that a deal will be struck later this week. While a 3pm EDT meeting between leaders was postponed to allow for further negotiations between the two parties, it is clear from the overnight market reaction that investors believe that a deal to prevent a potential US government default will occur before the October 17 deadline.
Eurozone industrial production bounced back in August after falling in July with a rise of 1% recorded<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14102013-AP/EN/4-14102013-AP-EN.PDF>. The increase completely offset the 1% decline previously recorded in July and was the largest month-on-month increase since July 2011. Despite beating expectations for an increase of 0.8%, the annualised contraction accelerated to -2.1% from -1.9% prior.
New lending in China rose strongly in September with an increase of ¥787b recorded. The expansion was well ahead of both the ¥711.3b figure of August and expectations for a decline to ¥650b and left total lending some 14.3% higher than the same month a year ago.
India wholesale price inflation quickened in the year to September with an increase of 6.46% recorded. The figure was above the 6.10% rate recorded in the year to August and expectations for a decline to 6% with food and fuel prices, up a staggering 18.4% and 10.08% respectively, largely behind the ugly result.
The Day Ahead (All times AEDT)
The ASX 200 looks set to discard its ‘Monday blues’ today with SPI futures pointing to a rise of 43pts on the open. Unless we get further negative news out of Washington, something that simply cannot be ruled out given their recent track record, gains will be broad-based with the financial sector likely to do most of the heavy lifting.
The AUDUSD has pushed higher overnight with a combination of USD weakness, short covering and stronger-than-expected Chinese lending data for September propelling the pair to as high as .9507 before easing modestly into the close. While the ongoing negotiations will trump all, presuming that a positive outcome is indeed reached and that the RBA minutes reflect the neutrality of the October monetary policy statement, it is highly likely that the pair will find itself above key resistance at .9510 before the day is out. Support is found at .9484, .9465, .9450 and .9410 with resistance kicking in at .9510, .9529 before blue sky beckons on the way back to .9650.
The minutes of the RBA’s October 1 monetary policy meeting will be released this morning at 11.30am. While we’ll get the usual focus on recent house price gains, the strength of the labour market along with the level of the Australian Dollar, the most import discussion, in our minds at least, will be whether the Board kept their easing bias ‘lite’ as has been the case in recent months. While there is a possibility that it will remain, with forward-looking data starting to head in the right direction, it would not surprise if the Board decided to drop this line in light of recent developments.
Along with the RBA monetary policy minutes, domestic markets will also receive new motor vehicle sales data for September at 11.30am. On the regional front, Japanese industrial production figures for August will be released at 3.30pm this afternoon.
Economic data releases this evening include the Empire State manufacturing index from the States, Existing home sales in Canada, the ZEW index from Germany, CPI and PPI figures from the UK along with German import prices.