Caution Prevails Before US Q4 Earnings

Sydney, Jan 8, 2013 AEST (ABN Newswire) - Eurozone investor sentiment continued to climb heading into January with the Sentix index surging to -7.0. The result was well ahead of the -16.8 figure of December and forecasts for a small rise to -15.0 and marked the highest level seen since July 2011. While it's now risen for five-straight months, perhaps the biggest surprise to come from the data was the modest improvement expected by economists. The US fiscal cliff was resolved, albeit temporarily, while the STOXX600 is up 4pct since the start of December - two factors alone that help explain its "outperformance".

Suggesting a strong number may be on the way from the Chinese next week, Taiwan export growth came in ahead of expectations during December with the government reporting an annual growth rate of 9.0pct. The figure was double the 4.5pct gain that had been expected by the markets with the Chinese number now likely to impress given the positive correlation that exists between the two data series.

UK house prices ended the year on a bright note with Halifax reporting an increase in December of 1.3%. While impressive against expectations for flat growth during the month, prices were still down 0.3pct from the same quarter a year ago.

The Day Ahead (All times AEDT)
US Q4 earnings season kicks off tomorrow morning with Alcoa scheduled to report after the closing bell. With US indices at 5-year highs, should revenues not match the apparent improvement in the US economy of late, expect a near-term correction in stocks, commodities and risk-oriented currency plays.

Australian stocks will attempt to snap their two-day losing streak this morning with SPI futures pointing to a rise of 5pts on the open. While we've seen another rise in the iron ore price, something that along with mixed base metals prices may help the materials sector, with the Aussie Dollar asphyxiating corporate earnings above 105c and caution before US earnings season likely to prevail, it wouldn't surprise if we saw the market finish modestly lower for a third-consecutive session.

Seemingly oblivious to the falls at the start of the US trade, the Australian Dollar has tracked the late recovery in US equities overnight with the currency closing off the session at it highs buying 1.0507. While it could find a further bid on the back of the trade data released at 11.30am, something that we believe will beat consensus, caution before the start of US earnings season should see gains capped below the 1.0530 level today. On the downside, something we do not expect to see much of today, it is likely to find support from 1.0470 onwards.

Local data releases today include trade data for November along with the AIG-HIA Performance of Construction Index for December. While it's a near certainty that the construction sector will remain deep in contractionary territory, there will be plenty of interest in the trade numbers with economists expecting a huge deficit of $2.3bn for the month. Although you'd expect some lag time from the rebound it commodity prices to when it's replicated in the data, given that many of our exports are now priced off short-term contracts, if there are any risks to the number today, they are clearly to the upside. The construction PMI is out at 9.30am while the trade data will be released at 11.30am.

A euro-centric economic calendar this evening with the release of unemployment, retail sales, consumer inflation expectations and economic sentiment for the Euro Zone, trade numbers from Germany and France, unemployment from Switzerland and Italy along with German industrial orders. Across the Atlantic the calendar drops away with US consumer credit the only release of note.

Source: Arab Bank Austalia Limited

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