US durable goods orders tumbled by 3.4% in December. The reading, below the downwardly-revised 2.1% decline of November and expectations for an increase of 0.5%, was the fourth-straight month that a contraction had been recorded. Looking under the hood the internals were equally unimpressive with core orders, that which excludes transportation items, falling by 0.8% following a 1.3% decline in November, while non-military, non-aircraft orders slid by an additional 0.6%. Completing the weak data set shipments of non-military capital goods ex-aircraft, an input into GDP, fell by 0.2% following a 0.6% decline in November.

US consumer confidence surged in January with the Conference Board Index rising to 102.9. The reading, higher than the 93.1 level of December and expectations for an increase to 95.1, was the highest level seen since August 2007. Reflecting lower gas prices and a strengthening labour market the current conditions index jumped to 112.6 from 99.9 while the expectations measure rose to 96.4 from 88.5 in December.

US new home sales leapt by 11.6% in December. The reading, far stronger than the downwardly-revised 6.7% decline of November, left the annual pace of sales at 481k, the highest level seen since June 2008. Sales increased in three of four survey districts with gains in the Northeast (53.6%), South (17.7%) and West (3.1%) overshadowing an 11.5% drop in sales from the Midwest. Elsewhere the mean sales price rose to $298.1k from $291.6k in November while the amount of available stock at the present pace of sales fell to 5.5 months from 6.0 months seen previously.

US metropolitan house prices continued to cool in November, at least according to the latest CaseShiller house price index, with a decline of 0.2% reported. The figure, the third-straight month that a drop has been recorded, left the annual rate of change at +4.3%, the lowest level seen since October 2012

Growth in US service-sector activity accelerated slightly in January with the ‘flash’ PMI gauge from Markit rising to 54.0. The figure was higher than the 53.3 level of December and expectations for an increase to 53.8 although, taking some of the gloss off the headline reading, the gauge measuring new business fell to 51.4, a low not seen since the survey began in October 2009.

Manufacturing activity across US Mid-Atlantic States cooled slightly in January with the Richmond Fed index falling to +6. The reading, below the +7 level of December, was largely held up by improved shipping activity with gauges on employee numbers, wages, along with prices paid and received, all deteriorating over the month.

UK economic growth slowed in Q4 with an increase of 0.5% reported. The reading, below the 0.7% gain of Q3 and expectations for an increase of 0.6%, left the annual rate of growth at 2.7%, up from 2.6% reported previously. Two of four industry components contributed to growth during the quarter with gains in services (+0.62ppts) and agriculture (0.01ppts) overshadowing declines in production (-0.02ppts) and construction (-0.11ppts) output.


The Day Ahead (AEDT)

The ASX 200 looks set to give back most of yesterday’s gains this morning with SPI futures pointing to a decline of 31pts on the open. While there will likely be pockets of resistance found in gold and energy producers given gains in spot prices overnight, whether or not the index recovers will largely be determined by the domestic CPI print released at 11.30am this morning. With ‘yield-chasing’ back in vogue post the ECB policy decision last week it will require a dovish set of numbers, something the markets have completely built in, to ensure a continued bid in recent beneficiaries such as the financial and Telco sectors. If this indeed arrives expect the index, led by the abovementioned sectors, to recover in the back-half of the session. If not, a hotter-than-expected number could well see the index tumble on the back of profit-taking.

A quiet session for the AUDUSD overnight despite a plethora of US data releases with the pair trading in a relatively-narrow band of .7915 to .7974 throughout. Today all attention will be on two things, the domestic CPI release at 11.30am along with the upcoming FOMC policy decision in the early hours of tomorrow morning. While it’s clear the pair remains in bear trend, something that will see it remain under pressure for the moment, with so much good news priced into the USD and so much bad news priced into the AUD, it will have to take a significant undershoot on the core CPI figure to see further selling ensue. On the contrary, should the data meet-or-exceed expectations, watch for a sharp move to the upside as reduced rate cut expectations, along with profit-taking before the FOMC tomorrow morning, work in tandem to squeeze the Aussie higher. Bids are noted ahead of .7910, .7870 and again at .7850 with resistance located at .7974, .8000 and .8030.

Australian Q4 CPI will be released at 11.30am this morning. While the headline figure will literally grab the headlines all eyes in the market will be on the core reading, the preferred gauge of inflationary pressures used by the RBA, with a quarterly increase of 0.5% expected. If realised, and accompanied by no revisions, that’ll leave the annualised rate at 2.2%, towards the lower-end of the RBA’s 2-3% target band.

The US FOMC announce their January monetary policy decision at 6am tomorrow morning. With no press conference and updated economic forecasts scheduled all attention will be on the policy statement released alongside the rate decision. I’ll be watching out for any dissentions towards the policy action, particularly given new members will be voting at this meeting, along with any language on the strengthening the US Dollar, it’s implications for the inflation outlook and, of course, any changes to the expected timing for policy normalisation. In December the Committee noted ‘that it can be patient in beginning to normalize the stance of monetary policy’ with the guidance ‘consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October’. While it’s unlikely that the Committee will make any significant changes to this phrase, particularly having only established it in December, given the subsequent appreciation of the USD and drop in average hourly earnings in December, on a scale of probabilities, there seems a far greater risk that the FOMC statement will be dovish rather than hawkish in nature. This point is further bolstered by Central Bank policy decisions made in recent weeks.


Market Map Jan 28 2015


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