Daily Market Update 30 January 2014 - Turkish delight was not quite right!
As expected, the US Federal Reserve FOMC continued to scale back asset purchases at their January policy meeting, cutting back their monthly spend to $65b per month from $75b in December. As was the case in December, the Committee reduced both purchases of Treasuries and MBS by $5b to $35b and $30b respectively per month, again the same outcome that had been expected by the markets. In their accompanying monetary policy statement, the Committee suggested that ‘risks to the outlook for the economy and the labour market as having become more nearly balanced’ although given it continues to sit below their 2% target level, they will also monitor inflation developments ‘carefully’. As they had done previously, they also confirmed that asset purchases are ‘not on a preset course’ with their pace contingent on the ‘outlook for the labour market and inflation as well as its assessment of the likely efficacy and costs of such purchases’. Showing that the Committee were united on what was Bern Bernanke’s last meeting in charge, members voted unanimously on both the decision to taper asset purchases and leave the Fed funds rate unchanged at 0-0.25%.
Bad news out of Turkey overnight with the Turkish Lira (TRY) slumping to a low of 2.3196 against the USD, a level far above the 2.255 region it was at trading at prior to TCMB rate decision yesterday morning. Whilst it has since strengthened modestly back to 2.262 it is clear that the rout in the Lira, along with other emerging market currencies, is far from over yet.
As had been expected by most in the markets, the Reserve Bank of New Zealand left their key cash rate unchanged at 2.50% during their January meeting. To review the monetary policy statement released alongside the decision, click here.
US mortgage demand slipped fractionally last week with the MBA mortgage market index falling by 0.2%. The figure came on the back of a 4.7% jump in the previous corresponding week and was the first week in 4 that a decline had been recorded. Demand for new loans rose by 1.5% while refinancing fell by 2.2% with the average 30-year mortgage rate falling 5bps to 4.52%.
Eurozone monetary growth slowed to crawl in the 12 months to December with the ECB reporting an increase of just 1.0%. The figure was well below the 1.5% increase seen in November and expectations for an expansion of 1.7% with growth now at the lowest level seen since September 2010. Showing that demand from households and business remains almost non-existent, private-sector loans contracted by 2.3% on year, the same pace seen previously in November.
German consumer confidence continued to surge heading into February with the forward-looking GfK index jumping to 8.2. The reading was higher than both the upwardly-revised 7.7 reading of January and expectations for a decline to 7.6 and was the highest level seen since August 2008.
Spanish retail sales disappointed in December with flat growth recorded over the month. The reading was well below the impressive 2% increase recorded in November with the year-on-year rate dropping to -1.0% from +1.8% seen previously.
Italian business confidence fell unexpectedly in January with ISTAT reporting a decline to 97.7. The figure was below the 98.2 print of December and expectations for an increase to 98.6 although it remains above the 92.5 average recorded over the course of 2013.
UK house prices continued to march higher in January with the Nationwide house price index rising by a further 0.7%. While below the 1.4% increase recorded in December, the reading was above expectations for an increase of 0.6% with the year-on-year rate rising to +8.8%, the fastest pace of growth seen since May 2010.
The Day Ahead (All times AEDT)
Chinese markets will be closed today for Chinese New Year Celebrations.
Having rallied on ‘Turkish delight’ yesterday, reality over the TCMB rate decision looks set to come home to roost for the ASX 200 this morning with SPI futures pointing to a decline of 62pts on the open. Given the falls offshore, a light-ish economic calendar and further declines across base metals overnight, it seems unlikely that we’ll see much of a bounce today in the absence of some unexpectedly-bullish news.
Having printed a high of .8823 yesterday in Asia, the AUDUSD has fallen heavily overnight with a renewed slide in the Turkish Lira and further asset purchase tapering from the Fed seeing the Aussie cascade lower to its current level of .8734. Today we expect the pair to react to moves in the Turkish Lira, yes, seriously, with its direction likely to have a more-muted impact on the AUDUSD. Support is found at .8725, .8700 and again at .8678 with resistance kicking in at .8761-63 and above .8800.
Australian data releases today include December new homes sales from the HIA (11am) along with Q4 import/export prices from the ABS (11.30am). On the regional front we’ll also receive the final read on China manufacturing PMI for January from HSBC, a release that concerned markets when the preliminary estimate was released earlier in the month, Japanese retail sales along with New Zealand building permits for December.
A US-centric data calendar this evening with the release of Q4 GDP, something that will include important core PCE inflation data, weekly jobless claims along with pending home sales data for December. Earlier in the session markets will also have to digest Eurozone consumer confidence, lending figures from the Bank of England, Spanish GDP along with inflation figures from Germany.