Daily Market Update 4 November 2013 - ASX 200 rally set to resume, AUD lags

Daily Market Update 4 November 2013 - ASX 200 rally set to resume, AUD lags

Helping to ease concerns that the government shutdown had an overly-large impact on the economy, US manufacturing activity expanded at a stronger-than-expected pace in October with the ISM’s PMI gauge<http://www.ism.ws/ismreport/mfgrob.cfm> rising to 56.4. The reading was fractionally above the 56.2 figure of September and expectations for a decline to 55.0 and was the highest level seen since April 2011. Of the surveys components, improvements were recorded in new orders, supplier deliveries, inventories, order backlogs along with import/export orders with all components bar customer inventories expanding during the month. While the ISM gauge showed improvement, creating doubt over the strength of the official reading, a separate report from Markit suggested manufacturing growth slowed in October with a reading of 51.8 recorded<http://www.markiteconomics.com/Survey/PressRelease.mvc/ef50b354e0ca4801b08e53072919d1c2>. While up on the preliminary estimate of 51.1 released late last month, the reading was below the 52.8 figure previously reported in September.


UK manufacturing activity continued to expand in October, albeit at a fractionally slower pace, with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/9620f11fc5c748d8aaf417b28e6f9b1b> falling to 56.0. The reading was below the downwardly-revised 56.3 figure of September and expectations for an increase to 56.4 and was the lowest level seen since June this year. Despite the miss, Markit noted that ‘manufacturing output is growing at a quarterly rate of around 1-1.5%’, something that suggests ‘the strong pace of economic growth (seen) in the second and third quarters being sustained into the fourth quarter’.


China service sector activity expanded at a faster pace in October with the government’s non-manufacturing PMI gauge rising to 56.3. The result was above the 55.4 reading of September and marked the fastest pace of expansion since June 2012. As was the case with the manufacturing gauge, the headline figure was tarnished somewhat with the new order subindex, a lead indicator for future activity, falling to 51.6 from 53.4 prior.


The RBA’s commodity price index eased in October with a decline of 1% recorded<http://www.rba.gov.au/statistics/frequency/commodity-prices.html> (SDR terms). While giving back much of the 1.3% gain seen in September, the annualised rate of decline improved to -1% from -3.1% prior. Reflecting the strengthening Aussie Dollar, the index fell by 2.4% in local currency terms although it still remains some 7% higher than those levels of a year ago.


The Day Ahead (All times AEDT)


Having started November in the red, the ASX 200 looks set to recoup losses this morning with SPI futures pointing to a rise of 24pts on the open. As was the case on Wall Street on Friday, gains should be broad-based with most of the heavy lifting likely to come from the healthcare, utilities, industrials, materials and financial sectors.


Having fallen once again on Friday evening, the AUDUSD has opened fractionally higher this morning with the Aussie currently buying .9438. With the pair clearly a sell-on-rallies prospect at present, today’s domestic data dump will be crucial in determining the path in which the Aussie takes today with any weakness, particularly from retail sales, likely to get a far greater reaction to the downside than a strong number will have to the upside. Support starts at .9422, .9410, and .9394 with resistance starting at .9446, 9461 and again above .9486.


A big domestic data dump arrives this morning with the release of retail sales, both for Q3 and September, Q3 house price index, TD-MI inflation gauge and ANZ job ads for October. While all are important and influential on the monetary policy outlook, given it makes up roughly 50% of consumption, a key component in the national accounts, we expect that the retail sales data will garner most attention from the markets. Economists are looking for an increase of 0.4% in September with quarterly volumes adjusted for inflation expected to rise 0.2% following a flat reading in Q2. The TD-MI inflation gauge is out at 10.30am with all other data scheduled for 11.30am.


Having seen the US, UK and other parts of Europe report manufacturing PMI numbers for October last Friday, European manufacturing PMI gauges dominate the data calendar this evening with figures from Germany, France, Italy and Spain, along with the regional index, all scheduled for release. Alongside those readings, markets will also have to digest New York PMI and factory orders from the States, the Sentix survey from the Eurozone along with the Halifax house price index and construction PMI from the UK.


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