SCOREBOARD: Data divergence

A sharp lift in US jobs numbers lessens double dip prospects, but market eyes are transfixed on Europe.

That a 200,000 lift in US payrolls (unemployment rate down to 8.5 per cent) failed to enthuse the market on Friday night should give us a feel for what will drive action in the near-term. That’s not to say the economic data won’t matter at all, but in this increasingly binary world we know that the US didn’t and, probably won’t, double dip. We don’t need to fear that bogey man it seems, so US data this week, not that there is heaps, is unlikely to be the main focus. In fact, until Thursday, when we see the December retail sales report, the calendar is pretty light – wholesale sales and a number of Fed speakers (Williams, Pianalto, Evans, Plosser) are it. As for those sales numbers, partial indicators to date suggest US consumer spending was solid in the month and the consensus is that we’ll see a 0.3 per cent increase. The average monthly gain over the last 3 months was around 0.7 per cent (or more than double the historical average), so a 0.3 per cent lift is pretty good in that environment.

Politics is the name of the game at the moment and this is where things get tricky. I’ll talk more about it in my upcoming outlook, but despite the better run of US economic data lately, it’s difficult to be too bearish on Treasuries when you have Fed speakers arguing very forcefully for more stimulus. We had three Fed speakers on Friday night – NY Fed President Dudley, Fed Governor Duke and Boston Fed President Rosengren and all three want to print again – ‘more stimulus’ officially. The issue is what they buy and while Rosengren seemed to be in favour of further MBS purchases, another bout of Treasury buying can’t be ruled out.

Then there is the political theatrics across the Atlantic and there is no shortage of action on this front. German Chancellor Angela Merkel and French President Nicolas Sarkozy meet tonight to discuss the December 9 summit agreement and plan to report progress at a press conference afterwards. This is obviously worth watching in the lead up to the January 30 EU summit. We also have the constant threat of ratings downgrades – Hungary just last week (to junk by Fitch) – and the seemingly random actions of legislatures otherwise (Hungarian government enacted legislation that threatens central bank independence). Amidst all that, Italy and Spain will try to raise more cash this week in what will undoubtedly be closely watched bond auctions.

As for the remaining dataflow – in the US we get the Beige Book on Thursday morning, then the November trade numbers on Friday alongside trade prices, the Treasury budget and Michigan consumer sentiment (Preliminary January estimate). The Europeans then release German trade and industrial production data tonight, EC industrial production on Thursday and, of course, the European Central Bank board meets, although no further cuts are expected at this time (refis rate at 1 per cent). The Bank of England board also meets with no changes expected.

For Australia, the week kicks off with the ABS’s monthly retail sales survey (today at 1130 AEDT) where the market looks for a 0.4 per cent rise (me at 0.5 per cent). Now remember this survey is limited in its scope and hasn’t been giving a great guide to retail nor consumer spending for some time. In this survey, retail spending is soft. In the national accounts, retail spending is robust, which is why private demand was its strongest in the third quarter for almost four years. There are some areas of weakness in retail, but it seems the retail sector itself is a two-speed industry – clothes and department stores are being savaged, but household goods retailing is surging. Services themselves are strong as well. That’s the picture we’ve got to date and this survey isn’t really that useful unfortunately, although it is a market mover.

Building approvals are then out Tuesday at 1130 AEDT. The data is for November and most economists look for a number around the 6 per cent market (me at 2 per cent), which would be a decent response to the RBA’s rate cut. Recall that approvals had slumped (down 25 per cent) in the two months prior to that meeting, which is fairly alarming. Even if we do get that 6 per cent bounce, approvals are weak. That’s the key stuff. Westpac’s January consumer confidence survey is out Wednesday at 1130 AEDT otherwise.

Finally, it’s probably worth checking the Chinese GDP and production numbers on Friday (I haven’t seen the official time yet but is usually around lunchtime here in Australia).

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.

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