Daily Market Update 30 October 2013 - ‘QE for longer’ hopes drive markets higher
US retail sales slipped in September with a decline of 0.1% reported<http://www.census.gov/retail/marts/www/marts_current.pdf>. The result was below the flat reading expected by the markets and 0.2% increase of August and was the first monthly decline recorded since March this year. While the headline number was soft, ‘core’ sales, that which excludes auto-related purchases that have a tendency to augment the data, rose by relatively-healthy 0.4%. While below expectations for an increase of 0.5%, the result was four-times stronger than the 0.1% rise of August.
US consumer confidence slumped in October with the Conference Board reporting<http://www.conference-board.org/data/consumerconfidence.cfm> a fall to 71.2. The reading was well below both the upwardly-revised 80.2 reading of September and expectations for a decrease to 75.0 and was the lowest level seen since April of this year. Demonstrating the impact the government shutdown on the psyche of consumers, the 9pt month-on-month drop was the largest recorded since August 2011.
US metropolitan house prices continued to push higher in August with the Caseshiller house price index<http://www.housingviews.com/wp-content/uploads/2013/10/CSHomePrice_Release_August-Resultsf.pdf> increasing by a further 0.93%. The result was above both the 0.60% increase of July and expectations for a rise of 0.65% and left the year-on-year increase at 12.82%, the highest level seen since February 2006.
US producer price inflation fell unexpectedly in September with a drop of 0.1% reported<http://www.bls.gov/news.release/pdf/ppi.pdf>. The result was below the 0.3% rise of August and expectations for an increase of 0.2% and left the year-on-year increase at 0.3%, the lowest level seen since October 2009. While headline inflation was non-existent, core PPI, that which excludes food and energy price movements, increased by 0.1% leaving the annualised rise slightly higher at 1.2%.
US business inventories continued to expand in August with an increase of 0.3% reported<http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf>. The figure was in line with market expectations and came on the back of a 0.4% increase in July.
French consumer confidence<http://www.insee.fr/en/themes/info-rapide.asp?id=20&date=20131029> held steady at 85 in October. The result was below market expectations for an increase to 86 with improvements in expectations, expected savings capacity and the overall economic situation offset by declines in households past financial situation and expectations for the labour market.
Spanish retail sales beat expectations in September with workday-adjusted sales rising by 2.2% from a year earlier. The figure was slightly ahead of expectations for an increase of 2.1% and a sharp improvement on the -4.4% decline recorded in the year to August.
UK consumer credit growth expanded at a slower pace in September with an increase of £411m reported<http://www.bankofengland.co.uk/statistics/documents/mc/2013/sep/moneyandcredit.pdf>. The figure was below the £620m increase of August and expectations for a rise of £600m and was the lowest expansion recorded since June this year. Mirroring the slowdown in consumer credit, housing lending also missed to the downside, coming in at £1bn against expectations for an increase of £1.3b. Still, despite the miss on housing, total approvals rose by 66.7k, the largest month-on-month increase seen since February 2008.
As expected, the Reserve Bank of India<http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29858> hiked their key repurchase rate by 25bps to 7.75% during their October monetary policy meeting. The Board sighted the likelihood that both wholesale and consumer price inflation were likely to remain elevated over the coming months with the subsequent decision to hike rates “an appropriate policy response”.
The Day Ahead (All times AEDT)
Driven by ‘QE for longer’ hopes, the ASX 200 look set to recoup all of yesterday’s losses today with SPI futures pointing to a rise of 26pts on the open. While we’ll get the usual heebie jeebies surrounding Chinese money market liquidity midway through the session, unless we see another sharp selloff in mainland Chinese equities, its highly likely that the index will finish in the black by the end of today’s trading session. As was the case on Wall St, defensive sectors such as healthcare, consumer staples and telecoms should do well along with the sector that keeps on keeping on, financials.
Despite another round of sub-standard US economic data, the AUDUSD has continued to lose friends overnight with the pair finishing the session near its lows at .9476. While the price action has been poor in recent days, given there is a risk the FOMC will turn even more dovish during their October policy meeting, we expect the pair will stabilise today, or perhaps even push higher, as traders position themselves for a uber-dovish outcome. Support is found at .9472, .9463 and between .9394-.9400 with resistance kicking in at .9507, .9520 and again from .9547.
Australian new home sales for September will be released by the HIA at 11am today.
Regional data releases today include Japanese industrial production for September while in South Korea we’ll receive industrial production along forward-looking manufacturing and service-sector activity gauges for November.
The US Federal Reserve FOMC will deliver their October monetary policy decision at 5am tomorrow morning. After their shock decision not to taper asset purchases in September and the subsequent US government shutdown in October, markets expect the committee to leave the fed funds rate and asset purchase program steady at 0-0.25% and $85b p/m respectively. While that is a near-certainty, all eyes will be on the accompanying policy statement released alongside the rate announcement with any hint of further dovishness from the committee likely to celebrated across the markets.
While the FOMC will dominate all, there is plenty to keep the markets busy in the hours before the announcement with a raft of market-moving data releases scheduled on both sides of the Atlantic. In Europe we’ll receive business and consumer confidence figures for the Eurozone along with German unemployment data for October. Across the pond the data flow quickens with the ADP national employment report, CPI and MBA mortgage market index from the States all scheduled for release.