Daily Market Update 27 February 2014 - Capex cliff or downward trend ahead?

Daily Market Update 27 February 2014 - Capex cliff or downward trend ahead?

Bucking the trend seen in existing home sales of late, US new home sales rose strongly in January with an increase of 9.6% reported. The increase was far stronger than the -3.4% decline expected by economists and came on the back of an upwardly revised 3.8% drop in December with the 468k annual pace the fastest seen since July 2008. Solid gains were recorded in the South and Northeast regions while sales across the Midwest fell sharply from those levels of a month ago. 


US mortgage demand fell heavily last week with the MBA mortgage market index slipping by 8.5%. The reading was below the 4.1% decline reported in the previous corresponding week and was the third-consecutive survey that a decline had been recorded. Refinancing plunged by 11.4% with the number of mortgages for new purchases falling 3.5%, a decline that left the subindex at the lowest level seen since August 1995. Helping to explain the data weakness, well at least part of it, the average 30-year mortgage rate rose 3bps to 4.53%, the fourth week in a row that an increase had been recorded.   


UK Q4 economic growth was confirmed at +0.7% in Q4, unchanged from the preliminary estimate, with the year-on-year rate revised down to +2.7% from +2.8%.


German consumer confidence rose strongly heading into March with the forward-looking GfK consumer survey jumping to +8.5. The reading was above the upwardly-revised +8.3 figure of February and expectations for a decline to +8.2 with sentiment now at levels not seen since January 2007.


Italian wage inflation rose strongly in January with an increase of 0.6% reported. The gain was the strongest monthly increase since January 2012 and left the year-on-year rate at a four-month high of 1.4%.


More dire housing finance data was released in Spain overnight with total approvals and lending falling heavily in the year to December. Total mortgages fell by 30.1%, below the 27.4% decline of November, while mortgages written slid 26.3%, a small improvement on the 26.9% contraction seen previously.



The Day Ahead (All times AEDT)

The ASX 200 looks set for a weak start this morning with SPI futures pointing to a fall of 15pts on the open. While that’s where the index will begin the session, most likely led by falls across the materials and gold sectors following sharp declines overnight, whether the index finishes the session in the red will largely be determined by the Q4 domestic capex print that will be released at 11.30am. While a weak outcome will mean that economic growth will likely struggle in the quarters ahead, something that may weigh on corporate profits, with markets now heavily influenced by yield, or lack thereof, any weakness in the data may see renewed buying in stocks offering returns significantly above those found in bonds and cash. If this does indeed eventuate, the index could well be on track to close at the highest point since June 2008, particularly if Chinese markets cooperate. 


Perpetual, Qantas Airways, Transfield Services and Nine Entertainment Group headline today’s corporate earnings calendar.


Having been pulled and pushed by movements in the Yuan in recent days, the AUDUSD will hopefully have a new focus today, this time domestically-orientated, with the release of capital expenditure figures at 11.30am likely to have an immediate and lasting impact on the pair in the period ahead. In what is a tried-and-tested strategy, the most important figure will be the first estimate of 2014/15 spend, followed by the fourth estimate of 2013/14 spend, with the equipment, plant and machinery figure coming in a close third. Should we get a scenario were all come out ahead of expectation, expect the Aussie to surge higher in the period following the release. Conversely, should they all miss to the downside, expect the pair to come under significant selling pressure. The third scenario, one where the data comes in mixed, should see the 2014/15 spend override all others once all is said and done. Support is layered between .8944 to .8907 and again at .8873 with resistance kicking in at .8981-85, .9000 and at .9026.


Australian Q4 private capital expenditure figures will be released at 11.30am. Economists are looking for a contraction of 1.3% following a 3.6% surge in Q3. While initial attention will be on the headline, markets will be far more interested in the equipment, plant and machinery figure, along with the first estimate of 2014/15 capex spend, with these likely to be highly influential on movements in the Australian Dollar, interest rate futures along with the ASX 200 in the period following the release. Equipment plant and machinery is expected to have increased by 0.5% with the first estimate of 2014/15 spend expected to print at $139b, down from the $166.8b third estimate for 2013/14.


Data releases this evening include durable goods orders, jobless claims and Kansas City Fed manufacturing index in the States, M3 and consumer confidence figures from the Eurozone, unemployment, CPI and import prices from Germany, house price data and Q4 GDP from Spain, French consumer confidence along with Italian business sentiment. 


FOMC Chairperson Janet Yellen will deliver her delayed testimony to the Senate Banking Committee tonight in Washington. While it’s been two weeks since she appeared before the House, it’s unlikely that she will deviate much, if at all, from what was said previously.


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