Originally published by Rivkin Securities
The US Dollar Index strengthened overnight with US. equity markets following positive manufacturing and construction data. A manufacturing survey by the ISM (MoM Dec) rose to 54.7 from 53.2 previously and estimates for only 53.8. The closely watched sub-index of prices paid also increased up 11 points to 65.5 from 54.5 in November which bodes well for the FOMC’s inflation target. Other sub-indexes including employment & new orders also rose painting a positive outlook for the economy. A separate measure of construction spending (MoM Nov) jumped +0.9% surpassing the +0.5% forecast and previous reading of +0.5%.
The Federal Reserve of Atlanta also raised its estimate for fourth quarter GDP to 2.9% from 2.5% with forecasts for business fixed investment and both consumer and government spending rising after the Commerce Departments construction report.
The US dollar traded +1.02% higher this morning against a basket of peers and equity markets finished the session positively, both the S&P 500 and Nasdaq 100 up +0.85% & +0.98% respectively. The S&P500 saw fairly broad buying with 400/505 stock closing higher and all but one sector (utilities) finishing positively.
The euro was -0.47% weaker this morning after an initial spike higher following data that showed German unemployment (MoM Dec) declined more than expected, falling 17,000 with forecasts of only a 5,000 person decline. The seasonally adjusted unemployment rate remained stable at 6.0%. German headline CPI (YoY Dec) was also released overnight, rising to 1.7% from 0.8% previously topping market expectations of 1.4%.
The headline figure is benefiting from the rebasing effect of oil prices and as well other rising commodity prices which are boosting inflation globally. Core inflation in the Euro-zone still remains subdued at 0.8% year-on-year and tonight we will have a better idea of price pressures with both a headline & core reading out at 9pm AEDT.
The Australian dollar gained +0.54% on Tuesday as a manufacturing PMI report for China (MoM Dec) rose to 51.9 with expectations to remain unchanged at 50.9 as the sub-indices painted an optimistic picture with further signs of price gains. That took centre stage over concerns around capital outflows and the depreciation of the yuan.
Elsewhere a report by CoreLogic showed Australian house prices rose +10.9% in 2016 up from +7.8% in 2015 with Sydney and Melbourne dwellings leading the charge up +15.5% and +13.7% respectively. The report however does cite a growing divergence between house prices and those of apartments, with the former gaining +11.6% in capital cities while the later grew at half that pace up +5.9%.
The S&P/ASX 200 finished trading decisively higher, up +1.19% at 5,733.18 although a flat start to trading this morning looks likely with ASX SPI200 futures up 2 points in overnight trading.
Data releases:
· Japan Nikkei Manufacturing PMI (MoM Dec) 11:30am AEDT
· Euro-zone Services & Composite PMI (MoM Dec) 8:00pm AEDT
· UK Markit Construction PMI (MoM Dec) 8:30pm AEDT
· Euro-zone Headline & Core CPI (YoY Dec) 9:00pm AEDT
· US FOMC Meeting Minutes Dec 13-14 6:00am AEDT