Scoreboard: Broken record

Continuing Fed chatter on QE saw global stocks hit new records and pushed US bond yields lower.

A very quiet session with regards to the data and news flow, yet that didn’t stop further records being broken in the equity space. The S&P500 (1801), the Dow (16,026) and the Dax (9252) all hit new records. In fact the European market had very a solid session with the Dax up a further 0.6 per cent, the CaC was 0.7 per cent higher, and the FTSE100 was 0.5 per cent higher – decent earnings here helped.

On Wall Street, gains are more mixed as I write and the major indices were oscillating around zero. Noting that, and with just over an hour to go, the S&P500 was weakening into the close and had just dipped into negative territory falling 0.1 per cent (1796), which was where the Nasdaq was as well (3980). The Dow on the other hand was up 0.4 per cent (16,020).

Again there was no real news flow to speak of, and the data was all lower-tier stuff. For instance, the European trade surplus rose to €13.1 billion ($18.86 billion) in September from €6.9 billion the month prior. Exports rose about 1 per cent and imports fell 0.3 per cent. Exciting huh? Then in the US the NAHB housing market index remained at 54 in November. Whoa.

There as a bit more action on the bond market with the US 10-year Treasury yield down about 4 bps to 2.67 per cent. In the age of QE that’s a fair-sized move – sparked by some Fed commentary that implied QE will probably never end… well, at least not for some time yet.

But first, the rare words of wisdom that come from a minority of Fed speakers: the Philadelphia Fed President, Charles Plosser, seems to be implying that the Fed has lost some credibility by not tapering and said that it “cannot continue to play this bond-buying game by ear and risk the Fed’s credibility while creating lingering uncertainty about the course of monetary policy”.

He’s right on both fronts, yet wise words like this are drowned out by others who know little of economics and really couldn’t care less about the public good. Wisdom is increasingly a rare commodity and not something that is valued, bizarrely. Servility, however – well, that’s just priced at a premium, and of course is the reason why we get such crazy policy outcomes – like the GFC, housing bubbles etc.

Anyway, the main game starred the New York Fed President William Dudley. He is an extreme dove but was forced to acknowledge, at the very least, that the economic data has picked up. On that basis he was “more hopeful” on growth. Yet in an effort to justify why the Fed continues to print money, he said that stronger growth remained only a forecast and wasn’t yet a reality – which of course is an absurd comment to make and contradicts the overwhelming evidence. Yet evidence plays no part in policy, it seems. The main point to take away is that if Dudley is playing down strong growth and employment outcomes, then a taper is some way off – thus the rally on Treasuries.

In forex and commodity markets there wasn’t much. The Australian dollar is about 20 pips lower at 0.9373, the euro is up smalls at 1.3501 and the yen is at 99.92. Crude is then down 0.89 per cent on West Texas Intermediate ($92.98) and off 0.4 per cent on Brent ($108.3). Copper fell 0.7 per cent and gold was off $16 to $1271.

For our market today then we can expect a fall, according to the SPI at least. Just a modest one – and that comes after a fall on our market yesterday. On the news and data front, the only piece for the Aussie market is the Reserve Bank of Australia minutes. I’m not expecting a lot. The usual fictional stuff about the high Australian dollar which will keep them on a mild easing bias. Looking abroad we see European construction output, the German ZEW survey and that’s about it.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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