Daily Market Update 8 May 2014 - A day to expect the unexpected..
US Federal Reserve Chair Janet Yellen was in action overnight, testifying<http://www.federalreserve.gov/newsevents/testimony/yellen20140507a.htm> before the Joint Economic Committee of Congress in Washington. Sticking to a well worn script, she told lawmakers that ‘a high degree of monetary accommodation remains warranted’ and that labour market conditions remained ‘far from satisfactory’. On the process of normalising monetary policy, she reiterated that the FOMC would continue to taper asset purchases as long as the economy was improving and, once completed, any subsequent decision to hike rates would be determined by the performance of their dual mandate. She reiterated that the timeframe for policy normalisation would be ‘considerable’ with any adjustments to be based on incoming economic data.
US consumer credit continued to accelerate in March with the Federal Reserve reporting<http://www.federalreserve.gov/releases/g19/current/g19.pdf> an increase of $17.53b. The figure was above the downwardly-revised $12.99b expansion of February and expectations for an increase of $15.5b and was the largest month-on-month jump since May 2013. Overall revolving credit, namely credit cards, rose by $1.1b while non-revolving credit, largely student and auto loans, expanded $16.4b, the largest increase seen since September last year.
US non-farm productivity slid sharply in the three months to March with an annualised decline of 1.7% reported<http://www.bls.gov/news.release/pdf/prod2.pdf>. The reading was well below the upwardly-revised 2.3% increase of Q4 2013 and expectations for a decline of 1.3% and was the largest annualised fall seen since Q1 2013. Output increased by 0.3%, outpaced by a 2.0% lift in total employee hours, while labour costs surged 4.2%, the first increase recorded since Q2 2013.
US mortgage demand bounced strongly last week with the MBA mortgage market index rising 5.2%. New loans and refinancing both jumped, up 8.9% and 2.4% respectively, with the average 30-year mortgage rate sliding 6bps to 4.43%.
Canada building permits<http://www.statcan.gc.ca/daily-quotidien/140507/dq140507a-eng.pdf> fell for a second-consecutive month in March, declining 3.0% against expectations for an increase of 4.0%. While an improvement on the 11.3% decline of February, the result left the year-on-year rate at a worrying -5.5%.
Eurozone retail activity returned to growth in April with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/4960fd9ba2e44a94b5703b5468f7c458> rising to 51.2. The figure was above the 49.2 reading of March and was the highest ever reading in the 3-year history of the survey.
German factory orders plummeted by the most since November 2012 in March with a decline of 2.8% recorded<https://www.destatis.de/EN/PressServices/Press/pr/2014/05/PE14_156_421.html;jsessionid=872A722FFC7BD6BE96ACBD3787E028DD.cae4>. The reading was well below the upwardly-revised 0.9% increase of February and expectations for rise of 0.3% with the annualised rate falling to +1.5%, the lowest level seen since May 2013. A 4.6% drop in foreign orders, led by a huge 9.4% decline from the Eurozone, was largely behind the ugly monthly print.
German construction activity contracted in April with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/31a78f6c9b00440cad95f48effe53c44> slipping to 49.7. The reading was below the 52.5 figure of March and was the lowest level seen since April 2013.
French industrial production fell heavily in March with a decrease of 0.7% reported<http://www.insee.fr/en/indicateurs/ind10/20140507/IPI_201403_anglais.pdf>. The reading was well below the 0.1% expansion of February and expectations for an increase of 0.3% and was the sharpest month-on-month decline recorded since July 2013. Helping to explain the weak headline result, manufacturing production slid by 0.7% with the year-on-year rate slowing to +1.5%.
The Day Ahead (All times AEST)
The ASX 200 looks set to rebound this morning following sharp falls witnessed yesterday with SPI futures pointing to a rise of 35pts on the open. While early gains are likely, given steep falls in iron ore, base metals and gold overnight, it’s likely that much of the heavy lifting today will have to come from the financial and energy sectors. Things to keep an eye on during the session include the NAB H1 earnings report, domestic labour force data due out at 11.30am along with Chinese trade figures around 12pm. As you would expect, the first two are likely to be influential on the performance of financials with the latter on the recently-downtrodden materials sector.
A lacklustre session for the AUDUSD overnight with the pair drifting in a narrow range of .9319-49 throughout. While non-eventful, that description is unlikely to apply to today’s trading session with unemployment data from the ABS, a notoriously volatile release, set to see the overnight range smashed one-way-or-another. Given markets now expect the data to outperform, the last two releases have beaten expectations while forward-looking indicators such as the ANZ job ads survey continue to strengthen, it’s clear that the risks heading into this event are clearly to the downside. After that has passed, the Aussie will have to contend with Chinese trade figures due out at Midday with literally any outcome possible given volatility in the data of late. Support is located at .9317, .9305 and below .9280 with resistance located at .9350, .9368-77 and .9425.
The domestic data deluge comes to its crescendo today with the release of April labour force statistics at 11.30am. Having surprised with a surprisingly-strong result in March, economists expect a less-bullish outcome today with net job creation of 9.5k tipped with unemployment expected to rise to 5.9% after plummeting to 5.8% previously.
Regional data releases today include Chinese trade data for April, QV house price index from New Zealand along with South Korean bank lending figures. As you would expect, all eyes will be on the Chinese trade released around midday AEST with economists looking for exports and imports to have contracted 2.0% in the year to April, an improvement on the -6.6% and -11.3% falls of March, with the trade surplus expected to swell to $18.2b from $7.7b seen previously. Given the augmentation fake invoicing has had on the data of late, expect the unexpected when it hits the screens later in the session.
The Bank of England (2100) and European Central Bank (2145) both announce monetary policy decisions this evening. Markets expect the BoE to leave the key bank rate and asset purchase program steady at 0.5% and £375b respectively while the ECB is also expected to leave their key refinancing rate unchanged at 0.25%. While there is some chatter that the ECB governing council could cut their refinancing and deposit rates, something that’d leave the latter in negative territory, if there is to be volatility, it’s likely to be provided by ECB President Mario Draghi’s press conference beginning at 10.30pm this evening.
Data releases this evening include initial jobless claims from the States, housing starts and new house prices in Canada along with industrial production figures from Germany and Spain.