Daily Market Update 7 March 2014 - Aussie rockets to uncomfortably high levels

Daily Market Update 7 March 2014 - Aussie rockets to uncomfortably high levels

As they have done so since November 2013, the ECB left their key refinancing rate steady at 0.25% at their March policy meeting. Scuttling expectations that the governing council was on the cusp of providing additional monetary easing in the wake of benign inflation pressures, ECB President Mario Draghi spoke with reporters following the decision, telling them that while inflation was likely to remain at current levels in the coming months, it would likely rise back towards their 2% target over the medium term. That line, coupled with the reiteration that the level of the Euro is not a policy target, sent the Euro sharply higher with the EURUSD touching a fresh 2-year peak of 1.3873. Whether such a strong currency is a good thing, inflation sits near multi-year lows while producer price inflation is already there, is yet to be determined. 


As expected, the Bank of England left their bank rate and asset purchase program steady at 0.5% and £375b at their March policy meeting. No statement was released alongside the decision meaning details of the meeting won’t be known until the MPC minutes are released on March 19.


US initial jobless claims fell heavily last week with a decline to 323k reported. The reading was well below the upwardly-revised 349k pace of the previous corresponding week and forecasts for a decline to 336k with total first-time claimants now sitting at the lowest level seen since the beginning of the year.


Planned US job cuts fell heavily in the year to February with the Challenger layoffs survey falling by 24.4%. The reading was a sharp improvement on the 11.6% increase seen in the year to January with the decline the sharpest recorded since May 2013.


US factory orders continued to slide in January, declining 0.7% against expectations for a fall of 0.5%. The reading followed a downwardly-revised 2% contraction in December with orders now having fallen in five of the past 7 months.


William Dudley, New York Federal Reserve President, had a wide-ranging discussion with Jon Hilsenrath of the WSJ overnight with the permanent FOMC voter discussing economic conditions, both past, current and expected, along with the outlook for monetary policy. For those interested in what he said, the story can be found here.


Canadian building permits rose strongly in January with an increase of 8.5% recorded. The increase was a sharp improvement on the downwardly-revised 4.8% decline of December and expectations for an increase of 1.7% with the month-on-month gain the sharpest seen since July 2013.  


German factory orders rose strongly in January with an increase of 1.2% reported. The rise was ahead of expectations for an increase of 0.9% and followed an upwardly-revised 0.2% decline in December and left the year-on-year increase at 8.4%, the sharpest rate of improvement since July 2011.


French unemployment fell in Q4 2013 with a decline to 10.2% reported. The reading was below the downward-revised 10.3% rate of Q3 and forecasts for an increase to 11.0% with unemployment now sitting at the lowest level seen since Q4 2012.


Greek unemployment fell in the final month of 2013 with a decline to 27.5% reported. The reading was an improvement on the downwardly-revised 27.6% rate of November and left unemployment at the equal-lowest level seen since April 2013.


UK house prices soared in February with the Halifax house price index rising by 2.4%. The increase was well ahead of the upwardly-revised 1.2% rise of January and expectations for an increase of 0.7% and left the average price over the past 3 months up 7.9% from the same month a year earlier.


The Crimean people look set to vote on their future with the Crimean Parliament voting to hold a referendum on March 16 that will decide whether they remain an autonomous region of Ukraine or amalgamate as part of Russia. The decision has been criticised by the Ukrainian government and is seen to be unconstitutional by US President Barack Obama.


The Day Ahead (All times AEDT)

RBA Governor Glenn Stevens will appear before the House Economics Committee from 9.30am in Canberra.


The ASX 200 looks set to push into waters not seen since in the past 6 years this morning with SPI futures pointing to a rise 9pts on the open. With another nothing lead from Wall St and no major events to digest apart from RBA Governor Glenn Stevens speaking from Canberra, whether we finish the session will likely be determined by the performance of Chinese equity markets in the wake heightened concerns over creditworthiness across the shadow banking system.


Aided by a weak US Dollar, higher commodity prices and strong domestic data yesterday, the AUDUSD has surged higher overnight with the pair touching .9113, the highest level seen since early December 2013. With the currency now at levels deemed ‘uncomfortably high’ by the RBA previously, it will be interesting to see what Glenn Stevens has to say when he speaks from 9.30am this morning. Should he revert back jawboning the currency given its recent rally, expect the Aussie to fall back, albeit slightly. Conversely, should he not make any specific mention of the currency level, it will open the door to further gains later in the session. However, with non-farm payrolls out tonight, any further advance will likely be limited in nature. Support is found at .9086 and .9049 with resistance kicking in at .9113 and again at .9153.


The AIG Performance of Construction Index for February will be released this morning at 9.30am. On the regional front we’ll also receive the QV house price survey from New Zealand along with the leading index from Japan.


The biggest data event of the month arrives this evening with the release of US non-farm payrolls for February. Economists expect the economy to have generated 149k net jobs over the month, up from 113k in January, with unemployment expected to remain steady at 6.6%. Of the second-tier releases within the payrolls report, average hourly earnings and average work week are both expected to print at +0.2% and 34.4 hours respectively, unchanged from January. As is always the case, especially given the impact weather has played on economic data of late, watch out for revisions to prior data, they’re often more influential on markets than the current release itself.


While the payrolls report will dominate all beforehand, markets will also have to digest trade and consumer credit figures from the States, trade and unemployment data from Canada, industrial production and wholesale prices from Germany, Spanish house price growth along with Italian producer prices. On the policy front we’ll also hear from former Fed Chairman Ben Bernanke along with New York Fed President William Dudley.


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