Not a great session for the market, especially in Europe where stocks were smashed. We are talking about some of the biggest losses in about four months, with the Dax off 1.9 per cent, the CaC down 2.7 per cent and the FTSE100 down nearly 1 per cent.
It was sheer carnage… except for one thing – there is, or was, no panic associated with these moves. The night in fact was notable for the lack of news and data and of course the front page headlines declaring another crisis somewhere. The best I’ve seen on the newswires – and I’ve no reason to disagree – is that it was just a case of punters taking some chips off the table after what in reality has been an exceptionally strong run.
It’s the same story in the US so far, although magnitudes are smaller. With about an hour to trade, the S&P500 is 0.6 per cent lower, the Dow is off 146 points and the Nasdaq is down 0.6 per cent. Like Europe there was very little news or data-flow, and what was out was light.
For instance, the New York ISM surged 10 points to 69.5 in November, while the Economic Optimism index rose about 2 points to 43.1. By sector the biggest losses were found in basic materials, financials and healthcare. Energy stocks in contrast got a modest boost (0.1 per cent) at the time of writing, from a surge in crude prices – Brent up 1.1 per cent to $112.6, while West Texas Intermediate was 2.3 per cent higher at $96. The moves are driven by expectations that US crude inventories have fallen from recent peaks.
Commodities elsewhere were weaker with gold flat and copper off 0.5 per cent. Otherwise there isn’t much. The Australian dollar sits at 0.9138 from 0.9072, the euro is up nearly 60 pips to 1.3593 and the US 10-year bond yield sits at 2.78 per cent from 2.79 per cent.
So then on to the domestic front. The Reserve Bank’s decision to hold rates yesterday was expected and there was really nothing in the press release of interest, the statement was almost an exact copy of last month’s. So that means that the bank, if anything, is still inclined to cut given the high exchange rate, although data-flow and the economic backdrop demands a tightening bias.
It’ll be interesting to see how the bank’s tune changes, or how long it takes to change, because we’ve recently seen the proof that its view of the economy is unambiguously wrong. Indeed we get Australian third-quarter GDP numbers today and so far the partial indicators suggest growth should be quite strong. We’ll find out at 1130 AEDT.
For what it’s worth, the consensus is that GDP rose 0.7 per cent with annual growth at 2.5 per cent. Even if the GDP result is stronger than that I doubt it will stop the mind-numbing focus on the exchange rate and what is clearly the vapid view that a lower Australian dollar is needed for a rebalancing. This is quite simply wrong.
It’s going to get very tricky though. Why? Well, don’t forget the view expressed by many financial sector economists in 2011 that the economy was weak and that the Reserve Bank should cut. That the economy actually went on to record the strongest growth in five years over the 18 months or so was completely ignored by those economists and indeed the Reserve Bank board, who still went on to cut rates. Remember how that then crunched confidence – consumer spending fell hard. My fear is that if the Australian dollar should appreciate, we could see that continue. That is, the false rhetoric of weakness continued in order to justify a lower Australian dollar – despite the actual data showing ongoing strength.
Outside of that we get the breakdown of eurozone GDP tonight and decent run of US data: the ADP employment report, the trade balance, the non-manufacturing ISM survey, new home sales and the Fed’s Beige Book.
Have a great day…