Daily Market Update 25 October 2013 - Quiet day expected, keep an eye on China

Daily Market Update 25 October 2013 - Quiet day expected, keep an eye on China

US initial jobless claims fell modestly last week with a decline to 350k reported<http://www.dol.gov/opa/media/press/eta/ui/current.htm>. The result was 12k fewer than the upwardly-revised 362k pace of the previous corresponding week but below expectations for a decline to 340k. The government shutdown, coupled with ongoing backlog processing in California as a result of a recent computer system upgrade, are thought to be the main catalysts behind the elevated readings of late.


The US trade deficit widened fractionally in August with a figure of -$38.8b reported. The result was fractionally above the downwardly-revised -$38.6 deficit but narrower than the -$39.4 figure that had been expected by economists.


The expansion in US manufacturing activity slowed in October with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/b09c5d2286464631a1b040b8d7370dfc> falling to 51.1. While still in expansionary territory, the figure was below both the 52.8 reading of September and expectations for a decrease to 52.5. A contraction in output and stock purchases, along with a slowing in new order growth, were largely behind the weaker-than-expected result.


The US Bureau of Labour Statistics released an updated data release schedule overnight. For those interested in the changes, especially the news that October’s non-farm payrolls report will be released on November 8, not November 1, please click here<http://www.bls.gov/bls/updated_release_schedule.htm>.

Following on from China’s beat, a disappointing set of Eurozone PMI’s readings were released overnight with both the regional manufacturing and services gauges coming in below market expectations. Having printed at 51.1 in September, manufacturing PMI rose to 51.3, the highest level seen since August, although it was below expectations for an increase 51.4. While that was reasonable, the read on services was well off the mark with a decline to 50.9 reported. The figure was below the 52.2 reading of September, subsequently the same reading expected by the markets, and was the largest month-on-month fall recorded since March 2013. Unsurprisingly, with both gauges coming in below expectations, the composite PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/0a90c155c5334ae9a0285122636dcadd> fell back to 51.5 from 52.2 in September. On an individual nation basis, Germany<http://www.markiteconomics.com/Survey/PressRelease.mvc/ea870691dbeb4b3d9169092f34426260> saw service-sector activity expand at the same pace as September, 53.7, while manufacturing improved slightly from 51.1 to 51.5. As has been the case for some time, France<http://www.markiteconomics.com/Survey/PressRelease.mvc/c25fae531a1243b69ab9266c67f205f6>, the second-largest economy within the bloc, continued to disappoint with their services gauge slowing to 50.2 while manufacturing activity contracted at a faster pace, coming in at 49.4 from 49.8 prior.


Italian consumer confidence slipped more-than-expected in October with a decrease to 97.3 reported<http://www.istat.it/en/archive/101939>. The figure was below both the downwardly-revised 100.8 reading of September and expectations for a decline to 100.6 and was the lowest level seen since June. In a separate report, and perhaps explaining the fall in confidence, wage inflation<http://www.istat.it/en/archive/101960> held steady for a second month in September with the annual increase slipping to a five-month low of 1.4%.


Spanish unemployment fell for a third-straight quarter in Q3, the first such occurrence since 2005, with a decrease to 26% recorded. Despite beating both the 26.3% rate of Q2 and forecasts for a decline to 26.1%, the rate still sits some 18ppts higher than the pre-GFC low of 8% struck in Q3 2007.


UK industrial optimism soared in October despite slower order growth and output with the CBI’s quarterly survey<http://www.cbi.org.uk/media-centre/press-releases/2013/10/steady-growth-and-rising-optimism-among-uks-manufacturers-cbi/> rising to +24. The figure was higher than the +7 reading of July and expectations for an increase to +17 and was the highest level seen since April 2010. While optimism surged, total orders, export orders and output all fell heavily during the month, coming in at -4, -12 and +9 from +9, +6 and +33 in September.


Mirroring the tone of the MPC minutes released on Wednesday, Bank of England Governor Mark Carney delivered an upbeat speech at the Financial Times 125th Anniversary Celebrations in London overnight. For those who’d like to read it, click here<http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech690.pdf>.


The Day Ahead (All times AEDT)


The ASX 200 looks set to drift higher to end off the week with SPI futures pointing to a rise of 8pts on the open. As tends to be the case on low-news, low-volume days, the index will likely mirror the performance seen on Wall St with most the gains likely to come from the materials, industrials, energy, consumer discretionary and financial sectors. While it had little impact yesterday, it will also be worthwhile watching the moves in Chinese money market rates with any sharp increase in the short-end likely to have a negative impact on both Chinese and regional equities alike.


Having tried to rally following China’s PMI beat yesterday, the AUDUSD has come under renewed selling pressure overnight with the pair falling to as low as .9572 before rising modestly into the close. With little news to focus on and downside stops now removed, it wouldn’t surprise to see the pair drift higher today assuming no adverse moves in Chinese interest rates occur. Support is found at .9607-00, .9572 and .9550 with resistance kicking in at .9624, .9645, .9671 and again from .9700.


Regional data releases today include South Korean Q3 GDP along with Japanese CPI for September.


Economic data releases this evening include durable goods orders, leading index, Uni of Michigan consumer confidence survey (final) along with wholesale inventories from the States, UK Q3 GDP, the IFO business survey from Germany, Eurozone money supply and Italian retail sales.



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