Daily Market Update 1 November 2013 - Three letters will dominate today - PMI
US initial jobless claims fell fractionally last week with a decrease to 340k reported<http://www.dol.gov/opa/media/press/eta/ui/current.htm>. The result was 10k less than the 350k pace of the previous corresponding week but above expectations for a decline to 338k. With backlog processing in California now complete, something that had augmented the data series over the past month, the number was the first ‘clean’ reading that we have seen since the government shutdown and suggests that the labour market has indeed softened as a result of the 16-day hiatus.
Manufacturing activity across Chicago and surrounds soared in October with the ISM’s regional PMI reading<https://www.ism-chicago.org/chapters/ism-ismchicago/files/mni_chicago_press_release_2013-10.pdf> rising to 65.9. The figure was well above both the 55.7 reading of September and expectations for a decline to 55.0 and was the highest level seen since March 2011. All bar two of the surveys components recorded improvements during the month with most of the heavy lifting coming from sharp increases in production and new orders.
Canada’s economy grew more-than-expected during August with an increase of 0.3% reported<http://www.statcan.gc.ca/daily-quotidien/131031/dq131031a-eng.pdf>. While only half the pace seen in July, the reading was triple expectations for a rise of 0.1% and left the year-on-year expansion at 2.0%, the highest level seen since July 2012.
Unemployment<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-31102013-BP/EN/3-31102013-BP-EN.PDF> at an all-time record high and inflation<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-31102013-AP/EN/2-31102013-AP-EN.PDF> at levels not seen since November 2009. That was the unfortunate news out of the Eurozone overnight with both data sets raising questions over the true state of Europe’s ‘recovery’. Having seemingly stabilised in recent months, unemployment jumped unexpectedly during September with an increase to 12.2% reported. While unchanged from the upwardly-revised rate of August, the figure was well below the 12.0% rate that had been expected by the markets. Doubling-down on the bad news, inflationary pressures fell to multi-year lows in October with an annualised rate of 0.7% recorded. The figure was below the 1.1% rate of September, subsequently the same level expected for October, with core inflation, that which excludes volatile items such as food and fuel, falling to an equally-benign +0.8%.
German retail sales slumped unexpectedly in September with a decline of 0.4% reported<https://www.destatis.de/EN/PressServices/Press/pr/2013/10/PE13_367_45212.html;jsessionid=6C4D9D0BA531B96E5E8E4CC1A8B467D3.cae4>. The result was below expectations for a rise of 0.4% and left the annualised increase at 0.2%. Perhaps explaining the underwhelming pace of sales, GfK consumer sentiment, a forward-looking indicator<http://www.gfk.com/Documents/Press-Releases/2013/20131031_GfK-Consumer-Climate-Oktober-2013_efin.pdf> of household confidence, fell unexpectedly in November with a reading of 7.0 reported. While still near multi-year highs, the reading was below both the 7.1 figure of October and expectations for an increase to 7.2.
German import prices<https://www.destatis.de/EN/PressServices/Press/pr/2013/10/PE13_368_614.html;jsessionid=6C4D9D0BA531B96E5E8E4CC1A8B467D3.cae4> held steady in September, bucking expectations for an increase of 0.1%. While below expectations, with stronger data rolling off the series, the year-on-year decline slowed to -2.8% from -3.4% in August.
French consumer spending slipped in September with a decline of 0.1% reported<http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20131031>. While an improvement on the 0.3% contraction of August, the reading was below expectations for an increase of 0.3% and left the annualised level in negative territory at -0.1%.
Italian unemployment hit another fresh record-high in September with a rate of 12.5% reported<http://www.istat.it/en/archive/102489>. The figure was above both the upwardly-revised 12.4% rate of August and expectations for a decline to 12.3% with youth unemployment, those persons aged 15-24, rising to a staggering 40.4%.
Reflecting the regional gauge, inflationary<http://www.istat.it/en/archive/102500> pressures in Italy were non-existent in October with flat growth recorded during the month. The reading was well below expectations for an increase of 0.5% and left the year-on-year increase at a 4-year low of 0.7%.
UK house prices continued to push higher in October with the Nationwide house price index<http://www.nationwide.co.uk/~/media/nationwide.co.uk/pdf/hpi/Oct_2013.pdf> rising by a further 1.0%. The result was above both the 0.9% increase of September and expectations for a rise of 0.7% and left the year-on-year increase at 5.8%, the highest level seen since July 2010.
The Day Ahead (All times AEDT)
Having fallen fractionally yesterday, the ASX 200 looks set to start November moderately in the black with SPI futures pointing to a rise of 3pts on the open. In what will be a fairly simple scenario, should China’s official manufacturing PMI print at-or-above expectations, expect the index to finish in the black on the back of gains in the materials sector. On the flipside, should we get an underwhelming data outcome, expect the index to slip into the red on the back of, you guessed it, losses in the materials sector.
Having hit a high of .9526 earlier in the session, the AUDUSD has come under renewed selling pressure overnight with the pair currently trading near the bottom of its recent range at .9454. As is the case with equities, the pairs’ direction will be determined by the Chinese PMI print released at 12pm with a strong result required to keep the Aussie at its present level in light of recent bearish price action. Should we get an unexpected decline in the index, expect the pair to come under further selling pressure. Support is found at .9442, .9410 and .9390 with resistance located at .9475, .9495 and again above .9516.
Domestic data releases today include AIG’s Performance of manufacturing index, Q3 PPI, RP Data/Rismark house price index along with the RBA’s commodity price index.
Manufacturing PMI readings dominate the regional data calendar today with gauges from China, India and South Korea all schedule for release. While all are significant, given that it is the largest manufacturer globally, the official PMI release from China is likely to garner most attention. Having seen HSBC’s preliminary reading rebound modestly in September, economists expect that positive momentum will be replicated in the official release with a 0.1pt increase to 51.2 expected. Alongside the PMI readings, markets will also digest CPI and trade figures from South Korea.
Continuing the theme established in Asia, manufacturing activity readings continue thick and fast this evening with gauges from the Eurozone, UK and US all schedule for release.