Market Update November 13

UK unemployment held steady at 6.0% in September, defying expectations for a decline to 5.9%. Elsewhere total employed swelled by 112k in the three months to September, a result that was an improvement on the 46k pace of August but below expectations for an increase 125k, whilst those claiming unemployment benefits slid by 20.4k over October. While mixed, perhaps the biggest news to come from the report was on the wages front with average weekly earnings, averaged over the past three months, rising 1% in the year to September. While still undeniably benign, the figure was stronger than the 0.7% rate of August and expectations for an increase of 0.8% and marked the fastest pace of growth since March this year.

The Bank of England released their latest inflation report overnight with the Bank slashing their GDP and CPI forecasts on the back of a weakening global growth outlook, particularly in Europe. As was the case in their August report the MPC believe spare capacity within the economy is in the region of 1% of GDP while inflation, having been above target for much of the past few years, will ‘more than likely fall below 1% at some point in the next six months’ before gradually moving back towards target (2%) over the next three years.

Eurozone industrial production rose by 0.6% in September. The result, an improvement on the upwardly-revised 1.4% decline of August but below expectations for an increase of 0.7%, left the year-on-year rate +0.6%, far stronger than the -0.2% contraction expected. Overall a large 2.9% increase in capital goods production, along with a small 0.3% uptick in energy, was enough to offset weakness in intermediate, durable and non-durable good production.

German wholesale price inflation fell by 0.6% in October, the largest monthly decline seen since October 2013. Despite the weakness, with stronger data rolling off the series, the annual rate rose to -0.7% from -0.9% in September.

US mortgage applications continued to slip last week with the MBA mortgage market index falling by a further 0.9%. A 1.9% decline in refinancing was enough to offset a 1.1% increase in new purchases with the average 30-year mortgage rate rising 2bps to 4.19%.

Charles Plosser, Philadelphia Fed President and Narayana Kocherlakota, Minneapolis Fed President, both delivered speeches on monetary policy overnight. As you’d expect given their recent track record the former was hawkish with the latter dovish.

Indian consumer price inflation continued to ease in October with an annual increase of 5.52% reported. The reading was below the 6.46% rate of September and expectations for a decline to 5.69% and was the lowest level seen since the survey began in January 2012. Elsewhere industrial production accelerated to 2.5% in the year to September, above the 0.5% rate of August, with the reading the highest recorded since June this year.


The Day Ahead (AEDT)

The ASX 200 looks set to extend its fall this morning with SPI futures pointing to a decline of 6pts on the open. While the energy and gold sectors may come under selling pressure following declines overnight, with base metals and iron ore modestly higher and major Chinese data arriving later this afternoon, all the ingredients for a short-covering bounce in materials are in place. Elsewhere, if like the price action overnight is repeated, expect the telecommunications sector to outperform today. As is usually the case given its market weighting, the performance of financials will largely determine whether the index finishes higher or lower today.

The AUDUSD has rebounded yet again overnight with the pair currently fetching .8717. Given its reluctance to test previous lows in recent days and the onset of major Chinese data later in the session, risks today appear skewed to the upside. Support kicks in below .8710, .8680 and .8652 with resistance located at .8745, .8762 and again at .8800.

Regional data releases today include industrial production, retail sales and urban fixed-asset investment figures from China, producer price inflation, industrial production and machine orders from Japan along with manufacturing PMI and consumer confidence data from New Zealand. On the policy front the Bank of Korea announce their November policy decision although no change in rates is expected. As is usually the case, all attention will be on the Chinese data deluge released at 4.30pm. Industrial production and retail sales are expected to have grown 8.0% and 11.6% in the year to October, unchanged from what was reported in September, with fixed-asset investment tipped to slow to 16% from 16.1% reported previously.

Christopher Kent, Assistant RBA Governor, will speak at 12.30pm this afternoon.

Data releases this evening include initial jobless claims, Jolts job survey and Federal budget figures from the States, CPI readings from Germany, France, Italy and Spain, Canadian new home prices along with Greek Unemployment. On the Fed front Chair Janet Yellen, along with FOMC members Dudley, Plosser and Kocherlakota, will all be in action this evening.


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