SCOREBOARD: Chinese accelerator

Commodity prices spiked overnight after strong Chinese trade data, and the Australian dollar jumped too.

The big gains made overnight were found in the commodity space – and of course the Australian dollar which is now pushing up against the $US1.06 mark. Although, according to my data, it hasn’t quite made it and sits at 1.0597 as I write. Stronger Australia, higher commodity prices? That’d be China and you probably already know that the trade data yesterday was much better than expected.

Exports were up around 14 per cent over the year to December, which was well above the expectation for 5 per cent. Similarly, imports rose 6 per cent, again above expectations for a 3.5 per cent increase. Now these aren’t the ‘normal’ growth rates that markets have become accustomed to – 20 per cent plus – but they’re not bad.

The point to note though is that growth is accelerating. This is important. Regular readers will know this was exactly my prediction and for mine it’s not like we are even coming from a bad growth position in the first place. It is however becoming increasingly difficult for people to talk down global growth prospects in the face of recent developments. There has been no grexit, no US double dip and no China hard landing. Iron ore pries have rebounded and at this rate it doesn’t even look like we’re going to get a significant collapse in the terms of trade that domestic commentators were harping on about last year. This is why a significant number of commentators have suddenly changed their tune and are singing a much more positive song. It’s a fantastic development to see this by the way – to see some of last year’s bears come over to my way of thinking. Come here you goof-balls – welcome aboard. Welcome to reality.

The main consequence of course is that with the ranks of pessimists dwindling (assuming this is all sustained), the economic discussion should change course and become much more realistic. This will do much to alter the public’s perception of things. Business and consumer confidence will lift. Bottom line, markets are becoming more resilient, panicking less in the face of ‘disaster” and the fiscal cliff is the perfect case in point. If sustained, 2013 could be a truly fantastic year.

Now as for those commodity gains, we saw crude up 0.9 per cent to $93.95, also receiving support from a report suggesting the Saudi’s cut production in December. Only by 5 per cent, but there you go. Otherwise copper was up over 1 per cent and gold shot up $20 to $1676. Energy stocks were then a key outperformer on Wall St overnight with financials also posting solid gains. All up the S&P500 is up about 0.6 per cent (1470) with an hour or so left to trade. The Dow has put on 56 points so far (13446), while the Nasdaq is underperforming and is flat as I write. US economic data wouldn’t have really helped things, it was light but with the Fed talking down prospects at every turn, it’s certainly not helpful to see jobless claims rise. The increase was only modest and of course seasonal adjustment is difficult this time of year – for what it’s worth claims rose slightly in the week to January 5 to 375,000 from 367,000.

In other news, both the Bank of England and the European Central Bank left rates steady and there was no increase in money printing from the BoE. Indeed the ECB seemed to imply that the scope to cut rates was limited. While leaving the door open to further cuts if things deteriorate, the ECB was optimistic, suggesting that the eurozone would return to growth later this year and noting a ‘normalisation’ in financial markets. The euro shot higher on these comments and we are talking huge moves – about two big figures to 1.3206. as if to prove the ECB’s point, Spain auctioned off €5.8 billion in bonds last night at sharply lower yields. The 2-year for instance went out at 2.46 per cent compared to 3.28 per cent in October last year.

Finally, there was no action on the Treasury curve, or very little and we saw the US 10-year trade within a 4bps range. As I write the 10-year yield is a basis point higher at 1.88 per cent. The 5-year is at 0.79 per cent, and the 2-year sits at 0.25 per cent.

For the day ahead there is no Australian data worth noting so we have to look at what’s out elsewhere. There is some Japanese trade data out this morning that is probably worth a look, while at lunchtime we see Chinese inflation numbers. Tonight, UK industrial production and US trade figures are centre stage, while Philadelphia Fed president Plosser gives a speech on the economic outlook.

Hope you have a good day and a great weekend…

Adam Carr is a leading market economist.

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