Daily Market Update 1 May 2014 - ANZ & PMI – Acronyms set to dominate
As they have done since their December meeting last year, the US Federal Reserve FOMC continued to taper asset purchases at their April meeting, reducing their total spend by $10b per month to $45b ($5b Treasuries, $5b MBS). While that was a near certainty, with no projections nor appearance from Chair Janet Yellen to go off at this meeting, it was left to the wording of the accompanying monetary policy statement<http://www.federalreserve.gov/newsevents/press/monetary/20140430a.htm> to guide market direction with this line ‘Information received since the FOMC met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions’, something that indicates the slowdown of Q1 was merely temporary rather than the start of longer-lasting trend, seeing risk assets and bonds push higher to the detriment of the US Dollar.
An ugly, weather-related miss for US economic growth in Q1 with an annualised increase of 0.1% recorded<http://www.bea.gov/newsreleases/national/gdp/2014/gdp1q14_adv.htm>. The figure was well below the +2.6% rate of Q4 2013 and expectations for an increase of 1.2% and left growth at the weakest level seen since Q4 2012. While not as headline-grabbing as the GDP release, core PCE price inflation, the Fed’s preferred measure of price pressures, held at 1.3%, above the 1.2% pace expected.
US private-sector hiring continued to accelerate in April, at least according to the ADP, with their national employment report<http://www.adpemploymentreport.com/2014/April/NER/NER-April-2014.aspx> revealing a net increase in payrolls of 220k. The reading was higher than the upwardly-revised 209k increase of March and expectations for a gain of 210k and left hiring at the highest level seen since November 2013.
US mortgage demand continued to slide last week with the MBA mortgage market index declining 5.9%. The fall, the largest seen since late February, was broad-based with new loans off 4.4% while refinancing slid 6.9% to a fresh five-and-a-half year low. Affordability, rather than rates, looks to be the chief culprit behind the drop with the average 30-year mortgage rate holding steady at 4.49% for a second-consecutive week.
Canadian economic growth continued to expand in February, albeit less than what was seen in January, with an increase of 0.2% reported<http://www.statcan.gc.ca/daily-quotidien/140430/dq140430a-eng.pdf>. The figure was in line with forecasts but below the 0.5% expansion seen previously and left the year-on-year rate down 0.1% at +2.5%.
Eurozone inflationary pressures rose fractionally in the year to April with an increase of 0.7% recorded<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-30042014-CP/EN/2-30042014-CP-EN.PDF>. While above the 0.5% rate of March, the reading was below expectations for an increase of 0.8%. Reflecting the uptick seen in the regional gauge, Spanish CPI<http://www.ine.es/en/daco/daco42/daco4218/ipce0414_en.pdf> rose 0.4% in the year to April, in line with expectations and above the 0.1% contraction seen in March, while Italian CPI<http://www.istat.it/en/archive/120348> climbed 0.6%, above the 0.3% annual rate seen in February.
Spanish GDP<http://www.ine.es/en/prensa/cntr0114a_en.pdf> rose by 0.4% in the three months to March, in line with market expectations, with the year-on-year expansion rising to 0.6%, the fastest pace of growth seen since Q1 2011. Doubling up on the good news, retail sales<http://www.ine.es/en/daco/daco42/daco4215/ccm0314_en.pdf> rose by 0.6% in the year to March, above the 0.3% decline seen in February, with sales now growing at the fastest pace seen so far in 2014.
German unemployment<https://www.destatis.de/EN/PressServices/Press/pr/2014/04/PE14_153_132.html;jsessionid=E596D4882F57D1F9C64A586F13435F21.cae2> fell sharply in April, dropping 25k against forecasts for a decline of 10k. Despite beating expectations, the unemployment rate held steady at a record-low level of 6.7%. While news on the labour market was good, it was a different a story for retail sales with a decline of 0.7% recorded<https://www.destatis.de/EN/PressServices/Press/pr/2014/04/PE14_151_45212.html;jsessionid=E596D4882F57D1F9C64A586F13435F21.cae2> in March. While in line with expectations, with February’s 1.3% gain revised down to 0.4%, the year-on-year rate fell back to -1.9%, well below the 1.9% pace of February and the lowest level seen since December 2013.
Italian unemployment held steady for a third-consecutive month in March with a rate of 12.69% recorded<http://www.istat.it/en/archive/120313>. The reading was marginally lower than the downwardly-revised 12.74% rate of February and well below expectations for an increase to 13.0%.
French consumer spending beat expectations in March, rising<http://www.insee.fr/en/indicateurs/ind19/20140430/biens1403_eng.pdf> 0.4% against forecasts for an increase of 0.3%. Despite the improved monthly performance, the annual rate fell back to -1.2%, the lowest level seen since December 2012.
Greece retail sales continued to contract in the year to February, albeit at a slower pace, with a decline of 2.2% reported<http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0508/PressReleases/A0508_DKT39_DT_MM_02_2014_01_F_EN.pdf>. The reading was an improvement on the 2.9% decline recorded in January but missed expectations for a contraction of 0.5%.
The Day Ahead (All times AEST)
China, Singapore and Hong Kong, along with most of Europe, will be off today for the May Day Holiday.
The ASX 200 looks set to open firmer this morning with SPI futures pointing to a rise of 21pts on the open. Whether this plays out, or even extended, will come down to two events today, ANZ’s H1 profit announcement and the Chinese manufacturing PMI print at 11am, with those events likely to dictate direction of financials and materials, along with the entire index as a whole given their weightings, over the course of today’s session.
Despite a positive Fed, strong US private-sector hiring and large drop in the spot iron ore price, the AUDUSD has produced another Teflon-like performance overnight with the pair touching a high of .9301 before easing modestly into the close. While that was more than likely a consequence of the late ramp-up in US equities, something more akin to window-dressing rather than anything fundamental, direction today will be driven by the Chinese manufacturing PMI print that arrives at 11am with a reading at-or-above forecast (50.5), something that will indicate further stabilisation in activity, likely to see the Aussie break through selling resistance located above .9300. Conversely, should the PMI reading miss, it, along with the steep fall in commodity prices overnight, should act as a drag on the pair in the latter parts of the session. Support is located at .9283, .9250-60 and again at .9228 with resistance kicking in at .9301, .9317 and at .9350.
Domestic data releases today include the AIG performance of manufacturing index for April, Q1 import/export prices along with the RBA’s commodity price index for April.
Chinese manufacturing activity will be back in focus today with the release of April’s PMI gauge at 11am. Economists expect the reading to increase to 50.5 from 50.3 in March. On what is an otherwise bare calendar, South Korean CPI for April is the only other release of note.
A UK/US centric data calendar arrives this evening with most of Europe off for the May Day holiday. In the UK we’ll receive manufacturing PMI, Bank of England credit data and Nationwide house price index while in the US markets will have to digest manufacturing PMI, both the ISM and Markit releases, jobless claims, Challenger layoffs series, PCE price inflation, construction spending along with income and expenditure figures for March.
Fresh from April’s FOMC meeting, Chair Janet Yellen speaks in Washington this evening at 10.30pm.