Scoreboard: Congressional kick

Punters coming back from the Labor Day long weekend in the US jumped all over metals last night, with gusto. Gold shot up $17 to $1412, silver spiked 3.6 per cent and copper rose 2.4 per cent. Big gains – biggest gain in a month for copper, which isn’t surprising as there is a lot going on in this space.

For a start – and this is probably more relevant for the precious metals and crude (although crude was up a more modest 0.8 per cent to $108.5) – Syria is heating up again as the drums of war beat faster. John Boehner, the Republican House speaker, called on Congress to support action against Syria, noting “we have enemies around the world that need to understand that we’re not going to tolerate this type of behaviour”. This was mimicked by other high-profile Republicans like House majority leader Eric Cantor, and comes amid discussion that Congress might just vote against a military strike.

Viewed in isolation, this probably isn’t such a big deal as I think most would have been surprised if Congress actually voted down the Commander in Chief. But this chatter occurred at the same time as Israel announced it was conducting missile tests with the US (missile defence systems and apparently scheduled) and Israeli Prime Minister Benjamin Netanyahu’s warning, “I want to say to anyone who wants to harm us – it is not advisable.” Obviously Israel is on a high state of alert given the high probability of reprisals in the event of a US strike.

We also have been seeing a run of positive manufacturing data around the world, and this is very positive for commodities – more so crude and copper, but it has helped bullish sentiment. Earlier in the week we learned that China’s manufacturing sector accelerated in August, while last night the US ISM survey suggested US manufacturing accelerated again in August, the index up to 55.7 from 55.4.

Now, this isn’t big gain – 0.3 points which, let’s face it, is nothing – but the thing is, the expectation was that it would fall. Instead it rose to its highest in about two years, although both production and employment were modestly weaker this month. Those falls in production and employment have to be balanced against a surge in new orders, however. New orders generally translate into higher production and employment, so it was a great report and it does suggest further improvement for the sector.

So it was that even with an initial spike in Treasury yields – the 10-year shot up 7 bps to 2.91 per cent before settling down to 2.85 per cent – and all the concern over Syria, US stocks managed to push higher with solid gains across the energy, basic materials, industrial, financial, healthcare and consumer service space. At the bell, the S&P500 rose 0.4 per cent (1639), the Dow was 23 points higher (14,833) while the Nasdaq was up 0.6 per cent (3612). Stocks in Europe were all weaker, the major indexes down between 0.6 per cent to 0.8 per cent, and if the SPI is any guide that’s also what we can expect for the All Ord’s today.

Finally for the price action, the Australian dollar put on about 60 pips or so after the Reserve Bank’s announcement (no changes, the Australian dollar is the target), but didn’t really move much higher from there – 10 pips, to sit at 0.9057 as I write. As for the euro, it was little changed at 1.3172, having hit a low of 1.3145; ditto the yen at 99.61.

So then for today, and data-wise for our market, Australian GDP is the key data release (1130 AEST) and most analysts are looking for a gain of around 0.5 per cent. Much will depend on what consumer spending does. Up until recently growth has been around trend and domestic demand well above trend, driven largely by solid consumer spending. This started to change from mid last year as consumers saw the Reserve Bank’s panic as reason to, well, maybe not panic themselves but certainly restrain spending. This is the ley variable to watch. There is every reason for consumer spending to pick up again – low confidence is the only reason it wouldn’t – and this is our national tragedy.

Other than that we see the breakdown of European GDP tonight; eurozone retail sales; US trade figures; the Beige Book and some words from the San Fran Fed President John Williams (non-voter).

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.