Scoreboard: Data recovery

Modest gains were the order of the day for Wall Street Friday night, helped along by some better-than-expected earnings reports from Amazon and Microsoft. The S&P500 ended the session up 0.4 per cent to yet another record high of 1759, the Dow was up 61 points (15,570) and the Nasdaq rose 0.4 per cent (155,570).

The dataflow itself wasn’t too important with durable goods orders up 3.7 per cent in September, which sounds great except that most of that was in the transport component – which is volatile. Core orders fell 0.2 per cent in September after a 1.1  per cent gain, so there is kind of no message there. Similarly, the final estimate of consumer confidence (Michigan Uni’s measure) showed confidence slipped a bit in October, to 73.2 from 75.2.

I don’t think there was too much to note from Friday otherwise and being ancient history I won’t dwell on the price action. Just note that the Australian dollar is below 96 cents at 0.9587 which is 30 pips lower than Friday at 1630. Euro did nothing and didn’t seem too phased by a slip in the well-respected IFO survey, probably because it still points to robust growth, the index slipping only 0.3 points in October to 107.4 – well above average.

Otherwise Sterling actually fell about 70 pips despite GDP data showing decent growth in the third quarter. The UK economy has certainly improved dramatically and the economy expanded 0.8 per cent over the third quarter following growth of 0.7 per cent in the June quarter, which is decent growth.

So then, turning to events this week there is actually quite a bit going on. Plenty of US data ranging from industrial production tonight, retail sales and house prices Tuesday night while on Wednesday night we see ADP employment and inflation figures. The two key events will probably be the FOMC meeting Thursday morning and then the ISM index Friday night.

At the outset I doubt very seriously that the Federal Reserve will taper at this meeting. Most of the Fed rhetoric from hawks and doves alike has been than the Fed would need to see ‘evidence’ of a turnaround in the economy or a strengthening. Now I don’t think anyone could credibly suggest this evidence isn’t already overwhelming. Yet people do suggest it and from the FOMC’s point of view, the government shutdown and ensuing data distortions means that the Fed simply can’t get a good look at the economy. That rules out a near-term taper, although again some Fed speakers have said every meeting is live.

Could there be a surprise? I doubt it. I think the probability of that is very low because when it comes to the taper, the last thing the Fed would want to do is surprise the market and see yields spike another 100 bps or so.

The Fed won’t want people to think that a taper is off the table though, or definitely delayed into 2014, so I suspect the statement will make it clear it spent a bit of time discussing it – maybe the statement will note that some thought it was a close decision again, but that they just couldn’t bring themselves to do it without greater clarification as to where the economy is at. The fact is that a taper is highly unlikely until the end of the first quarter of 2014 – or even the second.

That then leaves us with the ISM index Friday night. Currently, this is at 56.5 which show’s a fairly robust acceleration underway. That it’s expected to slip to 55.1 probably isn’t that material – that’s still a good print.

For Australia it’s largely about housing this week. Already we know that the record auctions over the weekend were met with strong demand. 3000 auctions with clearance rates around the 72 per cent mark according to RP data (81 per cent in Sydney).

With this kind of activity we should see credit lift and we get an update from the RBA on Thursday. We’ll also see if developers are responding to Australia’s housing shortage with approvals out that same day. Finally on Friday RP Data-Rismark release house price data for October.

Hope you have a great week…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.