It should be a quiet start to the week what with Wall Street ending mixed on Friday (S&P500 down 0.07 per cent, Dow and Nasdaq up 0.1 per cent) and our SPI up only 8 points. Not much to it apparently – the key US data was trade and for markets the important things to note are the signals within the trade data on broader growth trends.
Policymakers may not like imports all that much and all countries around the globe seem to want the same thing – strong export-led growth (US exports were up 1 per cent in November).
Now that’s all great, but the desired growth mix isn’t all that relevant to the current discussion about the strength or otherwise of the US recovery. Policymakers may not like it, but this essentially hinges on the consumer. The good news is that Friday’s trade data showed consumer spending is robust. Certainly imports were strong – up 12 per cent for the month – and this was especially so on household goods items like cell phones etc. Discretionary items basically. At the very least this was a good signal for the Christmas shopping period.
Now we actually get the December retail sales figures out this coming Wednesday night. These are actually expected to be okay, with a modest nominal rise tipped, and should look a bit better when you take out the auto sector (falling gasoline prices). There’s probably some upside risk to that figure given the strong trade numbers. Moreover, consumers must be feeling a little more secure in their employment given the strong jobs growth we’ve seen. There is a lot of fundamental support there.
Apart from the retail sales figures the numbers I’m most interested in include the Beige Book (a collection of anecdotal reports from chief executives by the Fed district), industrial production and the inflation figures (producer and consumer prices).
The Beige Book has been consistent in pointing to modest to moderate growth. I’m focusing less on the actual overall description of the US economy and more on any change to this perception. Two reasons for that. Firstly the Fed as an organisation tends to focus on the downside. There is a practical reason for that – they want lower rates forever and it looks ridiculous to have upbeat statements and the lowest rates on records. The second reason is that it isn’t uncommon for the perception of chief executives, people generally, to be shaped by the press. Yet what people say and what they do can be very different, as we’ve seen in the US – eg consumer confidence is still sluggish, but spending robust. Anyway US housing starts are also out – and even here the story is a good one. A gradual recovery is underway.
Outside of the US, Chinese economic data on Friday will be crucial. We see GDP, industrial production and retail sales. So far expectations are that GDP will be around 7.8 per cent, industrial production around 10 per cent and retail 15 per cent. These are clearly good numbers and don’t be put off by accusations that Chinese economic statistics are made up. If that is true, then it must be equally true on the downside as well as the upside. Strength or signs of a pick up cannot then simply be dismissed as data manipulation – any softness would also be data manipulation. This is why I think its always better to think long-term on China. Exact point estimates – GDP 8 per cent or 9 per cent etc – rarely matter in the developed world, let alone China. What matters are structural themes.
As for Europe, we see eurozone industrial production, inflation and trade figures.
So then turning our focus to the domestic market – we see home loans today at 1130 AEDT, Westpac’s consumer confidence at 1030 AEDTon Wednesday, followed up soon after by car sales at 1130 AEDT and then the Australian employment numbers on Thursday at 1130 AEDT. The constant expectation has been that the unemployment rate will rise and this month (December) it’s no different. 5.2 per cent to 5.4 per cent with employment growth of 4,500.
Don’t forget that the US earnings season picks up this week – big US banks report – and we also see Rio Tinto’s fourth quarter production report.
As you can see, there is there is plenty going on this week to move markets – plenty of hard hitting macro domestically and abroad and of course the US earnings season picks up.
Hope it’s a good week…
Adam Carr is a leading market economist.
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