Daily Market Update 14 November 2013 - As usual, markets bet on Yellen
US mortgage demand continued to slide last week with the MBA mortgage market index slipping a further 1.8%. The result came on the back of an upwardly-revised 2.8% decline in the previous corresponding week with refinancing and borrowing for new purchases falling by 2.3% and 0.5% respectively. Perhaps underlining the reason behind the drop off, the average 30-year mortgage rate rose sharply with rates jumping 12bps to 4.44%.
The US budget deficit narrowed sharply in October with a decline to $91.6b reported. The figure was an improvement on the $120b deficit of September and easily beat forecasts for a decline to $102b. In what is a good sign for the economy overall, total receipts rose by 7.9% from the same month a year ago while outlays slid by 4.5%.
Eurozone industrial production missed to the downside in September with a decline of 0.5% reported. The reading was below expectations for a fall of 0.3% with declines in capital, intermediate and consumer goods production partly offset by a 1.3% increase in energy. Despite the miss, after work day adjustments, the annual rate rose to +1.1%, a figure that was above both the upwardly-revised -1.1% figure of August and expectations for no change over the year.
Further promising news from the UK labour market overnight with unemployment falling to a 4-year low while the number of citizens claiming unemployment benefits continued to decline. Having held at 7.7% for the past two months, unemployment fell to 7.6% in September, in line with expectations, with the rate the lowest level seen since May 2009. Doubling up on the good news, the number of persons claiming unemployment benefits fell more-than-expected in October with a decrease of 41.7k reported. While below the upwardly-revised 44.7k figure of September, the result beat expectations for a decline of 30k. While they were strong, as has been the case for several years now, average weekly earnings continued to disappoint with the annualised rate over the last 3 months printing at just 0.7%, some 1.5% below that of inflation.
The Bank of England released their quarterly inflation report overnight with the members of the MPC declaring that ‘In the United Kingdom, recovery has finally taken hold’. Fitting with that mantra, the committee revised up their GDP forecast while unemployment and CPI were lowered. Importantly, particularly for future policy settings, the MPC made no change to their unemployment and CPI thresholds in terms of forward guidance.
Continuing the trend established Tuesday, Spanish consumer price inflation held steady in October with no change recorded during the month. The figure was below expectations for an increase of 0.1% with the year-on-year rate hitting a 4-year low of 0.0%. Excluding volatile items that distort the headline number, the news was little better with the annual rate dropping to a 42-mont low of 0.2%.
The Day Ahead (All times AEDT)
The ASX 200 looks set follow Wall St higher this morning with SPI futures pointing to a rise of 10pts on the open. While that implies a flattish start, with traders unlikely to add to bearish bets before FOMC Chairperson-elect Janet Yellen speaks this evening, it wouldn’t surprise to see the index squeeze higher today on the back of anaemic volumes. If the usual script is followed, the best gains today should come from the sector that has come under most pressure in recent sessions, financials.
The AUDUSD has followed US equities higher overnight with traders taking advantage of short-term short positioning to squeeze the pair higher. With no major domestic data out and speculation about another dovish showing from Janet Yellen likely to grow, we expect that the pair will be well supported through today’s trading session. Support is found at .9319, .9307 and at .9269 with resistance kicking in at .9369 .9394 and again at .9410.
Domestic consumer inflation expectations for November will be released at 11am today. While hardly market-moving, there are plenty of regional releases to keep investors busy with Japanese Q3 GDP the undisputed headline act. Aside from that event markets will also have to digest industrial production data from Japan, the Bank of Korea November monetary policy decision along with retail sales, consumer confidence and manufacturing PMI figures from New Zealand.
A plethora of market-moving data releases arrives this evening major events scheduled on both sides of the Atlantic. In Europe we’ll receive Q3 GDP figures from the Eurozone, Germany, France, Italy and Greece, current account, wage inflation and CPI figures from France, Greek unemployment, Indian wholesale price inflation along with UK retail sales. Across the pond markets will also receive international trade, initial jobless claims and Q3 labour and productivity data from the US along with new home prices and trade figures from Canada.
Trumping all of the above, US FOMC Chairperson-elect Janet Yellen testifies before the US Senate banking Committee this evening in Washington. Given she will be guiding policy in just two-months time, her words will guide market movements later in the session. With a reputation for being an ‘uber-dove’ when it comes to monetary settings, if there are any risks heading into this event, they are clearly that her tone will be more neutral that what markets currently expect. For those planning to get an early night on Friday evening, the testimony gets underway at 2am tomorrow morning.