SCOREBOARD: Delivery failure

US stocks made just small gains overnight despite a sharp rise in housing starts and a fall in jobless claims.

A surge in US housing starts and a sharp drop in jobless claims were two very good reasons to see stocks bid last night – and they did. But there just wasn’t a lot of oomph, and last night should have been an oomph night.

Housing starts surged 12 per cent (about four times the expectation) in December – 36 per cent annually – to 954,000, which is the highest number of starts in about four years. It’s below average still, but the momentum is great, and as I mentioned last year, accelerating. Jobless claims in turn sank to 335,000 – a 40,000 drop, which is the lowest level in about five years. It’s too early to be excessively joyful over that number though as seasonal patterns are difficult to estimate at this time of year, so that may be dampening the numbers a bit.

At this point the S&P500 is up maybe 0.4 to 0.5 per cent, which isn’t bad but again not reflective of the data. To be fair there was some negative stock specific news – Bank of America reported disappointing earnings as did Citi, while Boeing took a hit following the grounding of its 787s globally. On the data front, the Philly Fed index slumped to -5.8 in January from 8.1, which would have weighed as well. But the fact that this is inconsistent with nearly every other data point means we needn’t worry.

As I write stocks are doing a little bit better and have pushed higher still. With about an hour to go, the S&P500 and Nasdaq are both up 0.8 per cent, to 1484 and 3143 respectively, while the Dow is 117 points higher at 13628. The spark here, as best I can tell, was a report suggesting that Republicans are discussing the possibility of a short-term debt ceiling extension.

Now I’ve done a bit of research, spoken to a few people and look, my understanding – and I could be mistaken – is that Congress is bound by the constitution to lift the debt ceiling anyway; that is, if no agreement is made on reducing the budget deficit. Am I wrong? Help me out here. The way I see it, the 14th amendment says that the US debt shall not be questioned, and that this must be protected by Congress. Sure, Congress could cut spending or raise taxes, but in the absence of that or any agreement of that nature they would be bound by the constitution to lift the debt ceiling. Again, I’m happy to be shown why this train of thought is wrong – but that is my limited understanding.

For price action elsewhere, we are looking at decent gains across the commodity space, with better data and a weaker US dollar providing ample support. So crude is up 1.1 per cent to $95.30 (WTI), copper was up 1.5 per cent, while gold rose a modest $6 to $1689. Then we actually saw some decent moves on debt markets, as the US 10-year Treasury yield shot up 8 bps to 1.88 per cent, while the 5-year is 5 bps higher, while the 2-year is at 0.27 per cent.

In the forex space, the big move was the euro, which rose a big figure to be at 1.3380. Sterling is then up smalls to 1.6006, while the yen is at 89.93 from 88.2. The Australian dollar has clawed back most of the losses following yesterday’s jobs report and now sits at 1.0545 (40 pips or so higher).

A few other tid-bits worth noting. Spain sold €4.5 billion of 2-year, 5-year and 30-year bonds at lower yields; so for instance, the 2-year went out at 2.7 per cent compared to 3.3 per cent last time.

Then, a quick word on those Aussie employment numbers. Every news report I saw last night was ultra-pessimistic to the point of absurdity. Pick a channel, they were all the same and economists who loudly proclaim that they were the catalyst for February rate cut should hang their heads in shame.

The fact is there are a number of reasons why yesterday’s jobs numbers were not at all concerning – they were actually quite good. Firstly, the modest seasonally adjusted 5,000 fall was confined to Queensland, where we know the premier looks like he's on a 1980s mission to just sack people. In the absence of the Newman effect, jobs growth would have been around 15,000 and the unemployment rate would be at 5.2 or 5.3 per cent or thereabouts. That is, jobs increased around the nation – it's a fact.

Secondly, the headline fall follows 40,000 worth of job creation in the three months prior. For 2012 as a whole there were 150,000 jobs created, which is only a little below average. Excluding Newman, jobs growth is at average – and this isn’t even considering the argument of seasonal adjustment factors. The truth is about 100,000 jobs were created in December, seasonally adjusted down to -5,500. That is, the nation did create jobs, it’s just that usually more jobs are created in December.

The data remains consistent then. The labour market is tight, jobs growth is at trend, which supports GDP figures showing a similar thing, while inflation is in the middle of the target.

People need to calm down.

All that done, the main thing for punters to watch out for today is the run of Chinese data from about 1300 AEDT. We get GDP, industrial production and retail spending.

Have a great day and a great weekend…

Adam Carr is a leading market economist.

See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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