Daily Market Update 6 March 2014 - Economic ‘rebalancing’ in focus today
The US Federal Reserve released their latest assessment of current economic conditions overnight, commonly known as the Beige Book, with eight districts reporting improved levels of activity, two unchanged while two saw activity contract as a result of ‘unusually severe weather’. Despite the mixed performance, most remained ‘optimistic’ towards the outlook for activity ahead. Employment levels ‘improved gradually for most districts’ with ‘wage pressures stable’ while inflation pressures ‘remained unchanged’ across most of the 12 districts. To read the document in full, click here.
US service-sector activity expanded at a far slower pace in February with the ISM non-manufacturing PMI gauge falling to 51.6. The reading was well below the 54.0 figure of January and expectations for a decline to 53.5 with the gauge now sitting at the lowest level seen since February 2010. Perhaps more worrying than the headline figure itself, particularly given the makeup of the US economy, was the surveys employment sub-index with the reading slumping to 47.5, the lowest level recorded since March 2010.
US private-sector payrolls grew less-than-expected in February with the ADP national employment report printing at 139k. While above the 127k pace of January, downwardly revised from 175k, the figure was below the 155k pace expected by the markets.
US mortgage demand rebounded strongly last week with the MBA mortgage market index rising 9.4%. The increase completely offset the 8.5% fall recorded in the previous corresponding week and was the sharpest week-on-week bounce since early January. Both demand for new purchases and refinancing jumped sharply, up +9.4% and +9.6% respectively, while the average 30-year mortgage rate fell 6bps to 4.47%, the first decline recorded in the past four weeks.
Eurozone service-sector activity grew more-than-first-thought in February with Markit’s PMI gauge rising to 52.6. The reading was far stronger than the 51.6 figure of January and ‘flash’ estimate of 51.7 released late last month with activity now expanding at the fastest pace seen since June 2011. To see how the ‘Big 4’ performed, Germany, France, Italy and Spain, see below or click here for more details.
Germany: 55.9 (Flash 55.4, Prior 53.1, 32-month high)
France: 47.2 (Flash 46.9, Prior 48.9, 8-month low)
Italy: 52.9 (Forecast 49.9, Prior 49.4, 35-month high)
Spain: 53.7 (Forecast 54.5, Prior 54.9)
Eurozone Q4 GDP was confirmed at +0.3% overnight. The reading was in line with the preliminary estimate released last month with the year-on-year expansion also remaining unchanged at +0.5%.
Eurozone retail sales rose strongly in January, increasing 1.6% from a month prior. The reading completely offset the upwardly-revised 1.3% decline of December and left the year-on-year rate at +1.3%, the fastest annual growth seen since November.
As expected, the Bank of Canada left interest rates on hold during their March monetary policy meeting. The view the statement released alongside the policy decision, click here.
The Day Ahead (All times AEDT)
The ASX 200 looks set to pull back this morning after closing at a fresh six-year high yesterday with SPI futures pointing to a decline of 12pts on the open. While we will start off weaker, whether we finish there is debatable with the path of least resistance clearly to the topside at present. With major data due out at 11.30am, something that will again give investors a clue as to how the economy is travelling, it wouldn’t surprise to see the index reverse course later in the session on stronger-than-expected readings. As is always the case on days with no clear lead from Wall St, the movements in Chinese equities will also be a factor once they open at 12.30pm this afternoon.
The Australian Dollar has continued to grind higher overnight, something it’s been doing since the trading week got underway on Monday, with the pair currently buying .8987. In what will be a fairly simple scenario today, should the retail sales and trade figures both come in ahead of expectations, expect the Aussie to surge above the 90c level as traders target stops layered above that level. Conversely, should both miss, something that has not been seen at all recently, expect the pair to fall back to buying support located at-and-below .8940.
Domestic data releases today include trade and retail sales figures for January. Having impressed in recent months, economists have high hopes for both with a trade surplus of $100m and increase of retail turnover of 0.4% forecast. Given they are an important part of the economic ‘rebalancing’ jigsaw puzzle, expect plenty of attention when they hit the screens at 11.30am this morning.
Economic data out tonight includes jobless claims, factory orders, Challenger layoffs and Q4 productivity and labour costs in the States, Canadian building permits, German factory orders along with unemployment figures from France and Greece.
A big night on the Central Bank front this evening with monetary policy decisions from the Bank of England (BoE) and European Central Bank (ECB) scheduled for release. While no change in policy is expected from either, for those with an interest, the BoE decision will be released at 11pm with the ECB following suit shortly after at 11.45pm. As is always the case, ECB President Mario Draghi will speak at 12.30am following the policy meeting, an event that should provide plenty of market volatility given heightened concerns over disinflation within the currency bloc.
William Dudley, New York Fed President, will talk with Jon Hilsenrath, known as the ‘Fed whisperer’ from 12.15am tomorrow morning.