SCOREBOARD: Earnings tension

Not really a great deal goin' on at the mo'. Moves across most asset classes were small and indeed on Wall Street, US stocks were mixed to weaker. The Nasdaq (-0.3 per cent to 3117) especially so on reports Apple is seeing reduced orders for iPhone parts. Tech stocks were followed closely by telecommunications and financials, while consumer stocks, healthcare and industrials out-performed. With an hour or so left to trade the S&P500 is flat to negative (1471) and the Dow is up 0.2 per cent (13,508).

Part of the reason for the non-descript nature of the session is because everyone is holding out to see how this earnings seasons develops. Of the 28 firms that have reported so far, most have beaten expectations. But earnings growth is shaping up to be the softest in a few years – so far. In a world so willing to embrace crisis, that should normally see markets rally – the fact that there's still earnings growth! But we've already had a decent rally so far – a great rally and the truly brilliant thing is that was in a year dominated by pessimism. Reported confidence was shot and yet…

Other than earnings, the topic du jour is the US debt ceiling. Now from the commentary I've seen, the GOP has stated they'll "do their job” in the end and allow the ceiling to lift. But from their perspective they wouldn't be doing their job if they didn't at least try to stymie the Obama regime's reckless spending habits. Obama for his part said the issue of debt and deficits were separate and that the Republicans should lift the debt ceiling while saving discussion on deficit reduction for another day. The GOP said that's all great and dandy except that Obama isn't serious about cutting spending. And why would he be with the Fed funding the regime's deficits by printing money. No incentive.

In price action elsewhere, we saw crude push through $94 to be up 0.6 per cent for the session ($94.15). Crude is a tough one and there wasn't a lot of news that I would see in support. Gold was then up about $7 to $1667, although copper was off smalls – 0.2 per cent. The major forex rates are little changed, with the Australian dollar at 1.0569, the euro at 1.3379, sterling down about 40 pips to 1.608, and the yen sitting at 89.41. Finally in the rates space there wasn't much – the US 10-year Treasury yield sits at 1.86 per cent, the 5-year at 0.77 per cent and the 2-year at 0.25 per cent.

Bits and pieces otherwise. Firstly, those domestic lending numbers shouldn't be a great surprise. Everyone is looking for the lowest rates on record to lift confidence and boost lending, but this is the wrong way to think. Clearly. The way it's working at the moment, lending will remain sluggish until confidence lifts and this can't occur while policy makers panic. There aren't too many policy implications otherwise, nor are there from the job ads numbers. Jobs growth is at trend or a little below and the unemployment rate is low. There is little data to think that will change in the near-term, especially as some of the leading indicators aren't as leading as they once were. Turning to data out overnight – eurozone industrial production fell 0.3 per cent in November after a 1 per cent fall the month prior. Annually, production is down 3.7 per cent.

Finally, we heard from a couple of Fed speakers and both were very vague on exactly what would stop QE – stop the madness. As I highlighted to readers last year, this is deliberate as the Fed, despite claims to the contrary, does not have economic targets (real ones), but rather fiscal ones. So the San Fran Fed President, John Williams said that the Fed would continue to print money well into the second half of 2013, suggesting that they would be looking for ‘convincing' signs of ongoing improvement without defining what those convincing signs would be. Trend growth and a strong labour market improvement don't seem to feature it seems. This vagueness was replicated by the Atlanta Fed president, Dennis Lockhart, who said that it was wrong to refer to QE as QE infinity, but that the Fed would continue to print until the job market improves substantially. That's an interesting fairy tale being spun because jobs growth is stronger now than prior to the GFC – fact.

Looking at the day ahead, there isn't a lot of key macro data for Australia or the rest of the region. Rio Tinto's quarterly production report will be the key focus. Record production is expected, although slightly softer earnings after the sharp fall in commodity prices. Tonight we see the final estimate of German CPI (December) as well as UK inflation. Just note that in both Europe and the UK, inflation remains above target, although as we know this won't inhibit excessively loose monetary policy.

That's about the lot, have a great day…

Adam Carr is a leading market economist.

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