Daily Market Update 31 October 2013 - Positive Fed, negative markets
As was always likely to be the case following the government shutdown and subsequent deterioration in a majority of economic indicators, the FOMC left the Fed funds rate and asset purchase program steady at 0-0.25% and $85b per month at their October policy meeting. While that was a near-certainty, with no scheduled press conference to help add clarity behind the decision, all eyes were on the accompanying monetary policy statement<http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm> with a relatively-unchanged offering surprising many market participants who had been expecting a more-dovish tone from the Committee. Within the statement the FOMC noted that ‘economic activity had continued to expand’ with ‘indicators of labour market conditions show(ing) further improvement’. Despite ‘the recovery in the housing sector slow(ing) somewhat in recent months’, they kept the status quo from September, noting that they ‘continue to see improvement in economic activity… consistent with growing underlying strength in the broader economy’. As has been the case since midway through the year, the Committee once again suggested that they would ‘wait for more evidence that progress will be sustained before adjusting the pace of asset purchases’. While the markets certainly didn’t like the relatively-upbeat wording of the statement, given what we’ve seen since the government shutdown, a series of big data misses, one suggests that ‘evidence’ will be thin on the ground by the time they next meet in December.
US private-sector hiring continued to slow in October with the ADP national employment report<http://www.adpemploymentreport.com/2013/October/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-October2013-Final-Press-Release.pdf> revealing an increase of 130k for the month. The result was below the downwardly revised 145k pace of September and expectations for an increase to 150k and was the lowest level seen since April 2013. While certainly not a perfect indicator of labour market strength, particularly as is doesn’t capture public-sector hiring, the result left the average increase per month in 2013 at just 157k.
US CPI rose marginally in September with an increase of 0.2% reported<http://www.bls.gov/news.release/pdf/cpi.pdf>. The result was in line with market expectations and left the annualised increase at 1.2%, the lowest level seen since April of this year. Excluding volatile items such as food and fuel, items that can augment the overall outcome, ‘core’ CPI increased at the same rate as headline inflation, 0.2%, with the annualised rate slipping fractionally to +1.7%.
US mortgage demand improved sharply last week with the MBA mortgage market index rising by 6.4%. As is usually the case, refinancing led the recovery with an increase of 8.7% while approvals for new purchases rose by a smaller 2.3%. Underlining the chief catalyst behind the improvement, the average 30-year mortgage rate fell by 6bps to 4.33%, the lowest level seen since mid-June this year.
Eurozone economic confidence continued to push higher in October with the European Commission index<http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/2013/esi_2013_10_en.pdf> rising to 97.8. The reading was above the 96.9 figure of September and expectations for an increase to 97.2 and was the highest level seen since August 2011. Mirroring the improvement in economic sentiment, consumer confidence was confirmed at -14.5, slightly above the -14.9 reading previously recorded in September.
German unemployment fell for a third-consecutive month in October with a decrease of 2k reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/10/PE13_364_132.html;jsessionid=E61465517F19ADE379BFFCC2F810E2CD.cae3>. While below the downwardly-revised 24k decline of September, the result was ahead of expectations for nil change for the month. Despite the fall, unemployment held steady at 6.9%, the highest level seen since September 2011.
German consumer price inflation fell unexpectedly in October with a decline of 0.2% reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/10/PE13_366_611.html;jsessionid=32B2D6A1649F2C6B6AB87A521C0F5FFC.cae4>. The result was below the flat reading that had been expected by the markets and left the year-on-year pace at +1.3%, the lowest level seen since April 2013.
The Spanish economy returned to growth in the September quarter with an expansion of 0.1% reported<http://www.ine.es/en/prensa/cntr0313a_en.pdf>. The figure was an improvement on the 0.1% decline of Q2 and in line with economic forecasts and left the year-on-year contraction some 0.4% higher at -1.2%. In a separate report, consumer price inflation eased noticeably in October with an increase of 0.1% reported<http://www.ine.es/en/daco/daco42/daco4218/ipce1013_en.pdf>. The figure was below the 0.5% increase of September and expectations for a rise of 0.4% and left the annualised rate in deflationary territory at -0.1%.
As expected, the Reserve Bank of New Zealand (RNBZ) held interest rates steady at 2.5% at their October monetary policy meeting. To read the accompanying monetary policy in full, click here<http://www.rbnz.govt.nz/news/2013/5511812.html>.
The Day Ahead (All times AEDT)
The ASX 200 looks set to follow Wall St into the red this morning with SPI futures pointing to a decline of 15pts on the open. While we will start off weaker, with Japanese markets likely to cheer the weaker Yen and Chinese stocks on a tear yesterday, there is a chance that the index will finish in the black today, particularly should the local data print below expectations.
The AUDUSD has slipped lower on the back of the FOMC policy statement with the pair currently fetching .9479. While offshore factors dictated trade overnight, domestic data looks set to guide the pair today with recent price action suggesting that they will have to print above expectations if the pair is to maintain its current level. Support is found at .9460, .9442 and .9410 with resistance found at .9510, .9543 and again at .9584.
Australian data releases out today include private sector credit and building approvals for September along with import/export prices for Q3. While all three are important, expect markets to pay most attention to the building approvals data, particularly private house approvals, along with the housing credit component within private sector credit. In what will make for an interesting few minutes, all are scheduled for release at 11.30am. Along with the busy domestic calendar, there is also a plethora of regional data to digest with the release of manufacturing PMI, housing starts, construction orders and foreign stock and bond flows from Japan along with building permits and business confidence figures from New Zealand. Rounding off what will be a busy session, the Bank of Japan announce their October monetary policy decision although it is unlikely that that they’ll make any changes to what are already ultra-accommodative settings.
A massive data dump arrives this evening with a swathe of important economic releases scheduled on both side of the Atlantic. In Europe we’ll receive unemployment and CPI data from the Eurozone and Italy, retail sales, import prices and GfK consumer sentiment in Germany, French consumer spending, Italian PPI and the Nationwide house price index from the UK. Across in North America markets will also have to digest jobless claims from the US along with Canadian GDP.