Daily Market Update 24 October 2013 - Chinese markets, data again in focus
US mortgage applications slipped modestly last week with the MBA mortgage market index falling by 0.6%. The result was below the 0.3% increase reported in the previous corresponding week with a 0.7% lift in applications for new purchases offset by a 1.3% decline in refinancing. Showing that economic uncertainty surrounding the government shutdown rather than interest rates largely drove the decline, the average 30-year rate fell 7bps to 4.46%, the lowest level seen in over four months.
US house prices inched higher in August with the FHFA’s house price index<http://www.fhfa.gov/webfiles/25625/MonthlyHPIAug102313F.pdf> increasing by 0.3%. The figure was below both the downwardly-revised 0.8% increase of July and expectations for a similar rise in August and left prices some 8.5% higher than the same month a year ago.
US import prices continued to creep higher in September with an increase of 0.2% reported<http://www.bls.gov/news.release/pdf/ximpim.pdf>. The figure was in line with expectations and matched the upwardly-revised 0.2% increase of August and left the annual rate of change at -1%, down from -0.2% in August.
As expected, the Bank of Canada left their key benchmark interest rate unchanged at 1% in October. While that was a given, the bank did offer up a major surprise following the meeting, dropping their year-long tightening bias within their policy statement. To read the document in full click here<http://www.bankofcanada.ca/wp-content/uploads/2013/10/opening-statement-231013.pdf>.
The Bank of England voted unanimously to keep their key bank rate and asset purchase program steady at 0.5% and £375b respectively in October. To read the minutes of the meeting click here<http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/2013/mpc1310.pdf>.
Eurozone consumer confidence continued to improve in October, albeit fractionally, with the European Commission index<http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/2013/fcci_2013_10_en.pdf> rising to -14.5. The reading was in line with expectations and an improvement on the -14.9 figure of September.
Eurozone government debt levels as a share of GDP continued to push higher in the June quarter with an increase to 93.4% recorded<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-23102013-AP/EN/2-23102013-AP-EN.PDF>. The figure was higher than both the 92.3% reading of Q1 and 89.9% figure of Q2 2012 with the usual suspects, Greece, Italy, Portugal, Ireland and Belgium, recording government debt-to-GDP ratios well in excess of 100%. On a quarterly basis, Cyprus, in the news for all the wrong reasons over the past year, saw their ratio balloon by 10.8% with Greece, Slovenia, Portugal and Italy all recording increases of more than 3% in the three months to June.
French manufacturing sentiment ticked higher in October with INSEE’s business climate index<http://www.insee.fr/en/themes/info-rapide.asp?id=11&date=20131023> rising to 98. The result was in line with market expectations and above the 97 figure previously seen in September.
The Day Ahead (All times AEDT)
Having snapped its 6-day winning streak yesterday, the ASX 200 look set to tread water this morning with SPI futures pointing to an increase of 4pts on the open. As was the case yesterday, Chinese markets will once again dictate terms today with tightness in domestic money markets, something that caused a steep decline in Chinese equities yesterday, along with the release of manufacturing PMI figures for October at 12.45pm, likely to set to tone in the latter parts of the session. While there may be a temptation to buy pre-emptively given the data has improved in recent months, with that already priced in, coupled with commodity bellwether Caterpillar’s uninspiring profit result that was released overnight, it’s clear that if there are any risks heading into the data release today that they are clearly to the downside.
Having dropped like a stone midway through yesterday’s session, the AUDUSD has held its losses overnight with the pair trading in a relatively thin band between .9607-.9660. As is the case with stocks, the movements in Chinese equity markets, along with the manufacturing PMI data released at 12.45pm, will dictate its direction today with a stronger-than-expected showing likely to see the pair push higher while an unexpected miss, something the markets are not prepared for, will see it come under renewed selling pressure. Support is found at .9607, .9573 and .9557 with resistance kicking in at .9642, .9678 and again above .9700.
A double-dose of RBA action arrives today with the release of the banks’ annual report at 10am while Deputy Governor Philip Lowe will speak in Melbourne from 2pm. Given the title of his speech, ‘Investment and the Australian Economy’, and the proximity of yesterday’s CPI release, it could well have implications for domestic monetary policy.
Chinese manufacturing activity will be the centre of attention across Asia today with the release of the HSBC/Markit ‘flash’ PMI gauge at 12.45pm. Having returned to growth in September, economists expect activity to accelerate further in October with a reading of 50.4 forecast. While it will dominate all others, other regional releases include New Zealand trade data for September along with foreign bond and stock flows from Japan.
A busy data calendar this evening with plenty to keep markets busy on both sides of the Atlantic. In Europe we’ll receive ‘flash’ services and manufacturing PMI readings for the Eurozone, Germany and France, Italian consumer confidence and wages along with UK manufacturing orders. Across in the US trade data, initial jobless claims, manufacturing PMI and the leading index are also scheduled for release.