Scoreboard: Emerging disturbance?

Emerging markets will be closely watched after dominating discussion at Jackson Hole, while US GDP and Australian investment data may also make waves.

Friday’s session wasn’t too bad, with modest gains for equities on both side of the Atlantic. For the US this wasn’t so much driven by positive economic news – the data that was out was atrocious, with new home sales for July falling 13 per cent. Whether it was the fact that punters know this is a volatile data series, or because bad news means the Fed may delay a taper – who knows. US Treasury yields were certainly lower – the 10-year off about 7 bps to 2.81 per cent, so it could be the case that the market thinks it more likely that doves will win the day on the FOMC (as if that was ever in doubt).

Whatever the case, the S&P500 closed 0.4 per cent higher, the Dow was up 46 points and the Nasdaq was 0.5 per cent higher (3657). Not bad, and for the week the S&P was up 0.5 per cent following falls over the previous two.

Over in Europe, the boost to stocks was probably more about the positive economic news. Data breakdowns showed German GDP growth was broad-based in the June quarter, while for the UK, GDP was actually revised up for the quarter – 0.7 per cent from 0.6 per cent, with growth also reasonably broad-based. So we saw the Dax up 0.2 per cent, the CaC 0.3 per cent higher and the FTSE rising 0.7 per cent. All good.

Other than that we saw decent gains in the commodity space – crude up 1.3 per cent ($106.4), copper up 0.6 per cent and the precious metals surged, with gold $25 higher to $1395 and silver 3 per cent higher.

Not much really outside of that. The Jackson Hole conference over the weekend saw central bankers in the UK, Japan and Europe try to calm market fears about a Fed tapering by pointing out that hey – they will still be printing cash like reckless lunatics! And so people shouldn’t worry at all about a tightening in policy, ‘cause it ain’t happenin’.

On the emerging market ‘crisis’, issue, whatever – I think Brazil’s central bank summed it up best when the deputy governor said that a Fed tapering was actually a good thing for his country and that market moves had been “puzzling”. For mine, that “puzzling” behaviour can probably put down to one of South America’s leading exports – cocaine.

No doubt emerging market events will be closely watched this week, and it’ll be interesting to see which way the wind blows (MARKETS: Is the Asian miracle over? August 21). Otherwise there is some key data out for the US and Europe worth watching. For the US, we get the second estimate of June quarter GDP, which is expected to be revised up to 2.3 per cent from 1.7 per cent. That’s on Thursday night. Before that, durable goods, home prices, pending home sales, the Richmond Fed manufacturing index and consumer confidence are also out. Several Fed speakers will no doubt give more ‘hints’ as to a taper as well.

For Australia, we get some key data this week, and it’s all about investment. As we know, the consensus view is that the mining boom is finished. Gone. Personally, I think that’s a premature view based on, well, not much really. It was sparked, if readers recall, by the slump in iron ore prices last year. Well, here we are nearly 12 months later with iron ore prices just under $140.

Now, that doesn’t mean investment intentions won’t wax and wane according to the sentiment of the day. Investment has certainly been pulled on fears that the mining boom is over. But to really, genuinely believe the mining boom is over, you have to believe that the emerging markets are all of a sudden not emerging – that this was only a 2007-2008 story. Which of course it wasn’t.

Now, having said that, pessimism is extreme in this country – hysteria rife. This is not an environment where investment intentions will lift. So I expect the data this week to be soft and probably show a further downgrade of investment intentions. However, I’m looking for this to correct when confidence reverts to something more sensible (whenever that may be) – something that is more reflective of actual domestic and global economic prospects.

Actual investment is expected to be flat in the quarter. What if the data surprises? I don’t think that will change the discussion. Don’t forget that there was wailing and gnashing of teeth when the investment intentions data showed a 20 per cent surge was likely next year.

Other than that I think we also get the Commonwealth Bank/Housing Industry Association housing affordability index, HIA’s new home sales and private sector credit data.

Have a great week…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.