Stocks are up again and in Europe they’re up with gusto following confirmation that the world’s largest economic zone is out of recession. This is great news by the way, so ignore the press talking of a slowing and what have you. That’s not the key message coming from the data. The key message is that Europe is healing, and the worst is past. So investors take heart. And they did in Europe with the Dax up 1.1 per cent, the CaC up 1 per cent, while the FTSE100 was 0.5 per cent higher.
Admittedly it wasn’t all about the positive economic numbers. There were some good earnings reports out as well and then on top of that, Federal Reserve chairman nominee Janet Yellen came out swinging in defence of quantitative easing and noted that a premature end to printing money might be harmful. Mo’ money, stocks rally.
As for growth though, overall GDP was at 0.1 per cent in the third quarter, which follows growth of 0.3 per cent in the second. Modest, sure, but growth it is – and German GDP was at 0.3 per cent, French was at -0.1 per cent and in Italy GDP also fell 0.1 per cent. Spanish growth was positive though at 0.1 per cent and growth was decent in most other countries.
Despite the universally negative press, these are comparatively decent numbers – remember where Europe has come from – as they show the continent is past the worst. Notwithstanding some quarter on quarter volatility, momentum is building. Having said that, the euro initially weakened on the number, although in subsequent trading it strengthened. Overall, and from 1630 AEDT, the unit is little changed at 1.3451.
Now across the Atlantic and with about an hour to go, Wall Street is having an okay session. Stocks up, new records – that sort of thing. But there’s none of the oomph factor that we saw in Europe.
The news flow was pretty good though, with jobless claims falling to 339,000 from 341,000 which, while above the recent six-year low, is still at a level that points to ongoing strong jobs growth. A strong economy and an extremist dove running the Federal Reserve were two powerful reasons to see the S&P500 shooting well over 2000. The S&P500 however is only up 0.4 per cent for last night (1789), the Dow 50 points (15,872), while the Nasdaq is flat basically with only a 0.1 per cent gain (3969) – weak earnings from Cisco Systems weighed.
Otherwise for price action elsewhere we saw commodities generally stronger, with gold up $16.8 to $1285, silver rising 1.4 per cent and copper flat at 0.1 per cent. Crude markets were then mixed with WTI flat (-0.1 per cent to $92.8), while Brent spiked 1.3 per cent ($108.1). There was little exciting in the debt markets, with the US 10-year bond yield falling 1 bps to 2.7 per cent.
In other news, the Philadelphia Federal Reserve President Charles Plosser (non-voter) said the Fed should have one target – inflation – rather than the 'dual mandate'. The dual mandate, he argued, allows policy makers to continually shift the goalposts and effectively make up any excuse they want to justify a particular policy stance. Kind of what we’re seeing now.
Janet Yellen, who has been nominated for Fed Chair, also spoke at her nomination hearing but didn’t say anything really relevant to markets, although as noted stocks rallied when she implied more money printing for longer. Generally, her speech was mainly a defence of quantitative easing – which is a waste of breath in my opinion, because there isn’t a defence. There’s no sensible or reasonable argument in favour of it. But, she is an extreme dove, we know that, and her rhetoric over the years suggests she will do anything – move the goal posts, what have you – to justify ultra-low rates and quantitative easing for some time.
For the day ahead, the Australian dollar starts a little weaker at 0.9319 from around 0.9350 at 1630 AEDT. Then the SPI points to a flat outcome for our market today. It’s going to be pretty quiet data-wise as well. The key data won’t come till tonight with US industrial production. Otherwise we see the Empire State manufacturing index and wholesale inventories.
Have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.