SCOREBOARD: Chinese cracker

New data shows the US and Chinese economies stepping up, while Australia wallows in a pit of mining despair.

We’ve got the world's growth engines firing up – the US accelerating, ditto China – yet in Australia, we’re still moping around talking about recession or some fanciful growth slowdown. The fact is we saw another great set of jobs figures from the US on Friday, complemented by a surge in consumer credit growth ($14 billion in October).

We saw reasonable gains on the Dow the S&P500 0.6 per cent (13155) and 0.3 per cent (1418) as a result – not strong but okay. Gains may have been stronger but for the weight of the fiscal cliff and perhaps a drop in consumer confidence in December (Michigan Uni index down to 74.5 from 82.7 and an average of 90). Moreover, the Nasdaq was off 0.4 per cent.

Now as for those jobs figures, payrolls were stronger than expected again with a 146,000 increase. That brings the average over the last three months to around 138,000, consistent with the kind of monthly jobs growth you saw during the pre-GFC boom – and that’s with housing construction only about one-third of what it was. Most of the jobs were created in the services sector, which is fine, because that’s over 80 per cent of the economy. Jobs in manufacturing and construction were down for the month, although that follows an increase of a similar magnitude the month prior. Interestingly, the US Labour Bureau reckons that Hurricane Sandy had no meaningful impact on the numbers.

It’s quite clear that the broad picture of the US labour market stands at odds to the Federal Reserve’s view (that the labour market is too weak to see the unemployment rate fall). The US economy more broadly continues to recover at a strong pace and, in contrast to the common perception, it’s actually one of the strongest recoveries on record – certainly in recent decades. Many of the Fed presidents and governors have stated repeatedly that jobs growth has been insufficient to bring a meaningful decline in the unemployment rate and have used that argument to justify an unlimited and ongoing quantitative easing program.

All the while in the real world, the unemployment rate has fallen to 7.7 per cent from a peak of 10 per cent and is down by 0.8 per cent this year alone (8.5 per cent to 7.7 per cent now). That’s on the back of over 2 million jobs having been created – 5 million since the post GFC trough. All good.

Now over in Europe the mood was a little more sombre following a fall in German and UK industrial production (-1.3 per cent and -0.8 per cent respectively) – so stocks were mixed around zero (Dax down 9.2 per cent, CaC up 0.1 per cent, while the FTSE100 was 0.2 per cent higher). The SPI suggests our session will be something more aligned to European moves, up 0.1 per cent, although it’ll be interesting to see the net effect of extreme pessimism on everything here and the stronger-than-expected Chinese figures yesterday. China’s industrial production rose 10.1 per cent after a 9.6 per cent gain in October and retail sales were up 14.9 per cent. These are the strongest growth rates in eight months and realistically the SPI should surge on those figures – but then there’s the pessimism.

The bizarre thing is data out last week unambiguously showed the economy growing at least at a trend pace. I would say higher, because in the absence of a 50 per cent fall in defence spending, GDP would have been 0.8 per cent higher rather than the 0.5 per cent recorded. Then jobs growth is running at an average pace, supplemented by a lift in hours worked – the unemployment remains low despite repeated forecasts for a lift. It seems pretty clear, and for mine the Reserve Bank was not justified in slashing rates to crisis levels. They’re just feeding the fear by doing so.

The macro flow this week lightens a bit this week. We see home loans today at 1130 AEDT, then business confidence tomorrow at the same time. Consumer confidence then comes out on Wednesday at 1030 AEDT, followed by car sales on Thursday (1130 AEDT). RBA Governor Glenn Stevens then gives a speech 1530 AEST.

Globally I don’t think there is much data that will sway the world. We see Chinese trade figures today I think but otherwise the FOMC meet this week (Thursday 0430 AEST) and everyone expects them to print money soonish. It doesn’t really matter when, but it’s unlikely to occur at this meeting.

I suspect Ben Bernanke will go on about the weak labour market though and try to prepare the market for further bond purchases. Otherwise the big hitting data is out towards the end of the week – retail sales on Thursday night, CPI and industrial production on Friday. For the Europeans it’s all about German trade figures and Eurozone industrial production – that’s the big stuff anyway.

Have a great week…

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