First up a huge happy new year to all! I hope 2014 is a prosperous one – health, wealth and many good deeds. Coming back after three glorious weeks off, I can’t say too much has really changed in the market, which isn’t necessarily a bad thing. The S&P500 is about 2 per cent higher, which is the same as the All Ords. The Australian dollar is a little bit higher at 0.900 – but not meaningfully so. One of the biggest moves was actually in the rates space. Recall that yields spiked after the taper, and at the peak were just over 3 per cent – not in itself higher but a sizeable move from the 2013 low of 1.6 per cent or so. Since Christmas, the US 10-year bond yield has dropped about 17bp from a peak of 3.03 per cent to 2.86 per cent. Of course, most of that occurred after the payrolls figures just on Friday. Job gains in the US were paltry if you haven’t heard already, at 74,000 – well down from the expectation of about 200,000.
Now this result is being treated differently to other low results we’ve seen, in that there is no panic associated with it. Maybe that’s because the unemployment rate also dropped to 6.7 per cent from 7 per cent (even if mainly induced by a fall in participation), or maybe it’s because the 74,000 increase in jobs follows a very strong lift in November of 241,000. Then there was bad weather and we can’t forget the tendency for these numbers to be revised up. The November print for instance was taken to 241,000 from 203,000. One month doesn’t make a trend as they say, and the trend so far is strong jobs growth with the average of 182,000 jobs created per month – a total of 2.2 million for 2013 – which is a strong jobs growth year. With that in mind I suspect that 17bp move in the US 10yr yield will prove transitory. Outside of that, the other noteworthy price action includes a 6 per cent fall on crude (WTI to $92.7, Brent is off 4 per cent to $107.5), while gold is up about $44 to $1246.
For the most part, activity this week will still be affected by the holiday lull. Nothing big is really happening yet and investors are still trying to figure out what 2014 might hold. Against that backdrop, the SPI suggests our market will do nothing today (4 points to the downside) and global equities had only a little more activity on Friday night – mixed overall with the S&P500 up 0.2 per cent, the Dow down 0.1 per cent, while the Nasdaq was 0.4 per cent higher (markets 0.4-0.6 per cent higher in Europe). A good day to get through emails then.
Macro wise we’re unlikely to get too much guidance for the year this week. Domestically, we get a labour market update on Thursday which is the key piece of information, although Aussie home loans today at 11:30am are also important. I’ll write more about the employment numbers on the day while, for the lending figures, I've no reason to think that the recovery underway in the housing market will unwind any time soon. Globally, there are a few important data points, but so early on in the year nothing that will or could really change the view. The main data flow includes US retail sales on Tuesday, while Wednesday/Thursday we get producer and consumer inflation numbers and on Friday, housing starts and industrial production. There is a smattering of minor releases as well - the Empire State manufacturing index and the Philly Fed index, and of course a few Fed speakers (Fisher, Plosser and Evans).
Anyway, I hope you have a good week, it promises to be a gentle start at least.