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Manufacturing is driving the world; with the UK, US, Europe and Japan well into expansion territory – the UK print of 57.1 and the US print of 55.7 are the key stand outs. This is filtering through to company data; last night saw the release of US vehicle sale data and saw the Ford Motor Company experience a 12% rise in the sales of cars and light trucks. General Motors experienced a 15% rise and the Toyota Motor Company registered a massive 23% jump in sales, which translated into very positive stock price moves.
However, manufacturing euphoria is certainly not translating globally. We note that of the 26 countries to release manufacturing data over the last month, Australia is sitting dead last and in severe contraction, with a print of 46.4. That sees the country sitting behind others such as Greece, Ireland, India and Indonesia, all of which are (or have) experienced credit pinches and widening trade balance deficits in the last year.
The manufacturing print is not the only concern; we keep hearing that Australia wants to compete in sectors outside of mining and mining related services. The expectation therefore would be for the services sector excel. However, yesterday’s AIG services index read was the lowest print since April 2009 and at 39 it is an even lower print than the manufacturing data - expansion territory in the service sector is currently a dot on the horizon and is not getting any closer.
This is why the ASX may lag the rest of the world over the coming months, US and European data looks strong. Europe has snapped out of recession and confidence in the region is returning. In the US, the housing market is shining, local employment is increasing and that is translating into increased household wealth which is spreading to consumer spending across the board from building materials through to furniture and white goods all US economic positive.
However it’s not all bad for the local economy. Yesterday GDP print was ahead of expectation at 0.6% for the quarter and 2.6% year on year. The report released by the ABS showed household spending climbed 0.4% and added 0.2% points to GDP (this seems to counter the retail sale print from Tuesday which remains very soft). The household saving ratio continues to climb up 30 basis points to 10.8% and show no signs of slowing.
This is likely to signal the end of the rate cut cycle after the RBA removed its easing basis in its statement at the Tuesday rates meeting (however this may be due to the election and the boards’ intention not to impact the result). But it does look like 2.5% is mostly here to stay till Christmas and the Melbourne Cup cut is looking less and less likely, with the swap markets expectation of another rate cut before the end of the year dropping well below 50%.
This is very AUD positive, the GDP print, the end of the easing cycle and the fact safe haven currencies are unable to hold gains they have made on the back of the Syrian Crisis (even with a Senate committee backing plans by President Obama for a military strike on Syria overnight).
The China story is also back in favour with investors and the AUD pseudo-play is back on the agenda. The pairs to be most aware of are AUD/NZD, EUR/AUD and AUD/JPY all of which have seen AUD long triggers in the last 24 hours as the short spotlight over the last four months turns into a long spotlight. In the short term a positive move on AUD looks very likely even in the face of the emerging market story that continues to see India and Indonesia draining foreign reserves.
Ahead of the open, we are calling the ASX 200 up 12 points to 5173 (0.22%), after a very positive night in the US. One thing to be aware of is the US is coming off its worst month since May 2012 and the ASX has outperformed the US indices by 6.2%, so it is unlikely that the local market will jump as hard and as much as its US counterparts.
Aussie macro data is again on the newswires today with the release of the trade balance; expectations are for a $100 million positive print, so to achieve this raw material exports will have to have outperformed once more, so all eyes again on the AUD and the material stocks, particularly FMG.
BHP’s ADR is suggesting the stock will lose ten cents on the open to 35.44, however if the trade balance print is positive this will reverse quickly, so expect slow trade in the morning as investors tread lightly in the cyclical space.