Markets didn’t seem too enthused about anything last night and the price action itself was mixed. The debt ceiling is still attracting most of the news flow but as yet, punters are just watching and biding their time. Debt markets in particular don’t seem too fussed at all and the US 10-year yield was little changed at 2.65 per cent, which is about 12 bps lower over the week.
Amid all the talk and fear mongering over the US shutting down and not paying its bills, I guess it is something that US stocks still managed to push higher. It was only a modest uptick for the main part, but still the first gain in about five sessions. The Nasdaq was up 0.7 per cent (3787), but otherwise the S&P500 finished 0.4 per cent higher (1698) and the Dow rose 55 points (15,328).
The really good news out last night and the key piece of information for investors was those jobless claims numbers. It’s hard to tell whether this helped or harmed the bid though, because they weren’t supportive of quantitative easing forever. If you recall some weeks ago there was discussion about how valid the claims numbers were. At the time they had slumped to a six-year low in the low 300s, although some questioned the validity of that given some states had reporting problems.
An unnamed US official was even quoted as saying they would be revised higher as a result. Well weeks later and the Department of Labor is reporting no special factors distorting the figures and they note that reporting problems in those states have been brought up to date — and jobless claims are still at their lowest level since 2007 at 305,000. Good for the economy, bad for QE.
Bits and pieces otherwise. On the economic front, US GDP was revised marginally lower to 2.5 per cent from 2.6 per cent in the final estimate. That’s still above trend growth — if only just — but a good result all considered. Pending home sales then rose 2.9 per cent in August after a 8.5 per cent gain the month prior while the Kansas City Fed manufacturing index fell to 2 in September from 8. Remember these indexes are volatile and swing wildly. Finally for the UK, GDP growth was unrevised at 0.7 per cent which is the fastest in about three years. Elsewhere, the Australian dollar is almost 20 pips lower at 0.9358, euro is about 40 pips lower (1.3485) while yen is little changed at 99.
For today, the SPI suggests Aussie stocks will rise 0.2 per cent with the key data for our region Chinese industrial profits at 1130 AEST. Prior to that, we also see some Japanese inflation figures while tonight we see European inflation figures. For the US, key data will be consumer spending and income although it’s also worthwhile keeping an eye on three Federal Reserve speakers as well — Dudley, Evans and Rosengren. Dudley is the one to watch here as he is at the core of the Fed — he's vice chairman and president of the New York Fed. It’s usually Yellen and Bernanke and him who have spoken with one voice.
Obviously everyone is wondering when they’ll taper but there are no answers here. Although Fed Governor Stein said last night that he would prefer it if a taper was an automatic function of some labour indicator such as the unemployment rate or cumulative payrolls growth. It was supposed to be, but as I argued in these pages, the Fed was so vague, it was unlikely they would stick to it. Meanwhile it’s good to see more critical press recently on the Fed and the way they’ve conducted policy.
Have a great weekend…