Daily Market Update 7 February 2014 - Hopes for ECB stimulus cheer markets
Defying expectations for immediate action, the ECB left their key refinancing rate on hold at 0.25% during their February monetary policy meeting. While disappointing some who were expecting immediate action from the governing council, demonstrating that they will likely to take additional steps soon, potentially at their next meeting in March, ECB President Mario Draghi told reporters during his corresponding press conference that ‘the reason for today’s decision not to act has really to do with the complexity of the situation and the need to get more information’. He reiterated that the governing council were ‘willing and ready to act’ and they ‘continue to expect the key interest rates to remain at present or lower levels’. To read the full text of his statement, click here.
As expected, the Bank of England kept their key bank rate and asset purchase program steady at 0.5% and £375b at their February monetary policy meeting. With no policy statement released alongside the announcement, markets will have to wait until the minutes of the meeting are released on February 19 to get further clarification behind the decision.
Initial jobless claims fell heavily last week with a figure of 331k reported. The reading was some 20k less than the upwardly-revised 351k pace of the previous corresponding week and slightly ahead of forecasts for a decline to 335k.
US international trade deficit widened more-than-forecast in December with a balance of -$38.7b recorded. The deficit was wider than both the $34.6b figure of November and expectations for an increase to $36.0b with the net balance now standing at the widest level seen since October last year.
Planned US job layoffs surged in the year to January with the Challenger layoffs series rising by 11.6%. The reading was well above the -5.9% decline recorded in December and is the highest level seen since November last year.
Canada’s trade deficit continued to widen in December with an increase to $1.66b recorded. The reading was wider than the upwardly-revised $1.53b deficit of November and expectations for a decline to $650m with the net differential now at the widest level seen November 2012.
German factory orders fell unexpectedly in December with a decline of 05% reported. The figure was below the 0.2% increase that had been expected by the markets and came on the back of an upwardly-revised 2.4% rise in November. With the monthly read missing on the downside, the annual increase, adjusted for working days, came in at 6.0%, below the 7.2% pace seen previously.
UK house prices continued to push higher in January with the Halifax house price index rising by 1.1%. The figure was stronger than the 1% increase expected by the markets and well ahead of the upwardly-revised -0.5% decline of December. Despite the monthly beat, with weaker data rolling off the data series, the average price over the past three months rose 7.3% from a year earlier, a result that was below the +7.5% increase seen previously.
The Day Ahead (All times AEDT)
The ASX 200 looks set to build on yesterday’s impressive gains this morning with SPI futures pointing to rise of 37pts on the open. While we will start off strong, given that the index pre-empted the rally overnight yesterday and with the RBA statement on monetary policy likely to indicate interest rates will be on hold for the foreseeable future, it will be interesting to see whether then index can hold its gains throughout the course of today’s session. That answer, as is usually the case following a long stint on the sidelines, will likely be answered by the performance of the Shanghai Composite when it resumes trade at 12.30pm this afternoon.
The AUSUSD has continued to consolidate on recent gains overnight with the pair trading in a relatively-thin range between .8942 and .8979. While the pair is likely to be bid this morning as traders await the RBA’s statement on monetary policy at 11.30am, given that the pair is already up 2.3% this week and with markets already fully aware that the bank is likely to strike a neutral tone throughout, it wouldn’t surprise to see markets ‘sell-the-fact’, particularly before the all-important January nonfarm payrolls report this evening. Support is found at .8942 and.8900 with resistance kicking in at .8981 and again at .9000.
Local data releases today include the latest quarterly statement on monetary policy from the RBA along with the AIG-HIA Performance of construction index for January. As you could expect, all attention will be on the SMP released at 11.30am with markets keen to hear more on the banks’ assessment on the domestic and Chinese economies, the Aussie Dollar along with the medium-term outlook for GDP and CPI. Given that the Board have now adopted a neutral bias, it wouldn’t surprise to see upgrades to both their medium-term CPI and GDP forecasts, particularly the former.
US non-farm payrolls data for January will be released at 12.30am tomorrow morning. Economists are expecting a net increase in payrolls of 185k, well ahead of the 74k pace of December, with unemployment expected to hold steady at 6.7%. Of the secondary data, average hourly earnings are expected to increase 0.2%, up from +0.1% in December, with the average work week expected to remain at 34.4 hours. As ever, keep an eye out on revisions to prior month’s data, particularly given the adverse weather conditions seen of late, with any substantial change likely to be as influential as the January figures themselves.
While NFP will dominate all others, markets will also have to digest US consumer credit, Canada unemployment, trade data from Germany, France and UK, industrial production from Germany, UK and Spain, NIESR UK GDP estimate along with Q1 GDP from India.