Daily Market Update 26 March 2014 - To jawbone or not to jawbone?
US consumer confidence surged in March with an increase to 82.3 reported<https://www.conference-board.org/data/consumerconfidence.cfm>. The reading, well above the upwardly-revised 78.3 figure of February and expectations for an increase to 78.5, was the highest level seen since January 2008 with expectations, up a whopping 7pts to 83.5, entirely responsible for the robust monthly reading.
US metropolitan house prices continued to push higher in January with the Caseshiller house price index<https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/83930_cshomeprice-release-0325.pdf?force_download=true> rising by an additional 0.85%. Despite being above the 0.74% increase of December and expectations for a rise of 0.60%, with weaker data rolling off the data series, the annual rate of growth slowed to 13.24%, the lowest level seen since August last year. In a separate measure on house prices, the FHFA house price index<http://www.fhfa.gov/webfiles/26126/MonthlyHPI032514Final.pdf> also rose in January, increasing 0.5% from a month earlier. The reading was lower than both the 0.7% increase of December and forecasts for a rise of 0.6%.
US new home sales dipped<http://www.census.gov/construction/nrs/pdf/newressales.pdf> in February with the annual pace declining to 440k. The figure, down 3.3% following a downwardly-revised 3.2% increase in January, left the total rate of sales at the lowest level seen since September 2013.
Manufacturing activity across mid-Atlantic States contracted unexpectedly in March with the Richmond Fed manufacturing index<https://www.richmondfed.org/research/regional_economy/surveys_of_business_conditions/manufacturing/2014/pdf/mfg_03_25_14.pdf> sliding to -7. The reading was below the -6 figure of February and expectations for an increase to +4 with shipments, backlogs, new orders and capacity utilisation either deteriorating at-or-above the same pace seen in February.
UK consumer prices continued to ease in the year to February with an increase of 1.7% reported<http://www.ons.gov.uk/ons/dcp171778_354249.pdf>. The figure was in line with market forecasts but below the 1.9% rate of January with inflationary pressures now sitting that lowest level seen since October 2009. Hinting that upstream price pressures are unlikely to feature anytime soon, producer prices held steady<http://www.ons.gov.uk/ons/dcp171778_356479.pdf> during the month, below the 0.2% gain expected, with the year-on-year rate falling to 0.5%, the smallest annual increase seen since September 2009.
UK house prices continued to push higher in the year to January with the ONS house price index<http://www.ons.gov.uk/ons/dcp171778_356066.pdf> rising 6.8%. The reading, above the 5.5% rate of December and forecasts for an increase of 6.6%, was the sharpest annual growth rate recorded since August 2010.
UK retail turnover grew at a slower pace in March with the CBI distributive trades survey<http://www.cbi.org.uk/media-centre/press-releases/2014/03/retail-sales-continue-to-grow-but-at-slower-pace-cbi/> falling to +13. The figure was well below the +37 reading of February and forecasts for a decline to +28 with 36% of firms reporting above trend sales compared to 23% that were below. While softer, volumes are expected to rise strongly in April with a balance of +36 reported, the highest level seen since December 2010.
Mirroring the decline in their composite PMI gauge, German business expectations cooled in March with the IFO survey<http://www.cesifo-group.de/ifoHome/facts/Survey-Results/Business-Climate/Geschaeftsklima-Archiv/2014/Geschaeftsklima-20140325.html> slipping to 106.4. The reading was below the 108.3 figure of February and expectations for a decline to 107.7 with the index now sitting at the lowest level seen since October last year. While the outlook dimmed, current business conditions continued to impress, rising to 115.2 from 114.4, the highest level seen since April 2012. Combining the two gauges, the overall business climate index fell fractionally, dropping to 110.7 from 111.3.
French manufacturing confidence held steady for a fourth-consecutive month in March with INSEE’s business sentiment index<http://www.insee.fr/en/indicateurs/ind11/20140325/Emi_201403_NAF2_ang.pdf> remaining at 100. Slight improvements were seen in foreign order books, offsetting a decline in the overall production outlook.
Spanish producer prices continued to decline in February with a contraction of 0.7% reported. The fall, the third monthly decline reported in four, took the annualised rate of change to -2.9%, the lowest level seen since October 2009.
The Day Ahead (All times AEDT)
The ASX 200 looks set to return to winning ways this morning with SPI futures pointing to a rise of 19pts on the open. While on the surface it looks like gains will be propelled by the materials sector, base metals and iron ore were all up in excess of 1% overnight, given these moves were all but priced in yesterday, it’s likely that other sectors will need to chime in, particularly financials, if we are to replicate what was witnessed on Wall Street overnight.
A crucial session for the AUDUSD arrives today with RBA Governor Stevens discussing ‘the economic outlook’ before the 17th Annual Credit Suisse Asian Investment Conference in Hong Kong from 2.30pm this afternoon. In what will likely end up being a fairly simple scenario, markets have waited for this speech for the majority of this week so volatility is all but assured, should Stevens pull out the jawbone to knock the Aussie down, expect the pair to cascade lower before finding renewed bids below the 91c level. Conversely, should he leave the jawbone at home, something he has done of late, expect the Aussie to add to recent gains as traders take the view that the RBA no longer see the currency as ‘uncomfortably high’ in light of recent strong domestic data. Support is located at .9160, .9146, .9111 and .9097 with resistance found at .9174, .9200 and again .9225.
The final read of South Korean Q4 GDP, Australia’s fourth-largest trading partner, will be released this morning at 10am.
A triple dose of RBA action arrives today with Governor Glenn Stevens speaking in Hong Kong while Deputy Governor Lowe will address the CIFR Conference in Sydney. Given the recent surge in the Australian Dollar, markets will be eyeing off both events for clues as to whether the RBA are happy with the recent appreciation of the currency. Lowe kicks off affairs at 9.30am while Stevens speaks twice, once at 2.30pm and again at 5pm.
Data releases this evening include durable goods orders, ‘flash’ services PMI and the MBA mortgage market index from the States, German consumer confidence along with retail sales and consumer confidence from Italy.