Scoreboard: Fed tap dance

Solid US data is unlikely to budge the Fed anytime soon, while global news will set the scene for local markets this week.

Friday’s session should set a good tone for our market this week, although the SPI was only up 8 points (0.1 per cent). Still, gains in the US were better than this and the S&P500 and Dow hit new records of 1798, up 0.4 per cent. The Dow was 85 points higher (1596), while the Nasdaq rose 0.3 per cent (3985).

Despite the positive mood there wasn’t really much in the way of news flow, and it was very mixed in any case. US industrial production was out and was weaker than expected, falling 0.1 per cent, although there are two facts which mean this number isn’t as bad as it looks.

Firstly, it follows a very strong increase of 0.7 per cent in September, so there is a base effect there (i.e. strong numbers tend to be followed by weaker numbers). Secondly, manufacturing production actually rose 0.3 per cent.

As for the other data, we saw a very strong gain for wholesalers’ sales – up 0.6 per cent in September after a strong 0.4 per cent gain the month prior. On the downside, the Empire State manufacturing index slipped to -2.2 from 1.5.

By itself, none of this data was really a reason that markets pushed higher. Yet it’s quite clear the US expansion has accelerated, and really it’s only the Fed (and other central banks), their servile cheerleaders in the press, bond funds and some short-only hedge funds who question the strength of this growth spurt. So while there’s lots of PR about how uncertain it all is, real money – the smart money – is telling you there is much less uncertainty here. And why wouldn’t there be when the economic data shows strong growth? Moreover, the Fed will do nothing to rein in QE. Onwards and upwards.

Not much else to really say about Friday’s session, nothing that was interesting anyway. Commodities were flat-ish (up smalls) and in the forex space, the Australian dollar is at 0.9379, or up 40 pips, following the same path as euro which was up the same amount at 1.3492. The yen is smack bang on target at 100.3 (little changed).

Looking ahead, I’m not sure that it’ll be all that interesting either. The Reserve Bank’s minutes are out at 1130 AEDT on Tuesday but I doubt they’ll contain any useful information. I’m going to be more interested in a speech from RBA’s governor Glenn Stevens on Thursday night (2000 AEDT). Especially given the topic: “The Australian Dollar: Thirty Years of Floating”.

I would urge the Reserve Bank governor to think very carefully about how he addresses the issue of the currency. The dollar target has done great damage to this country, turning trend/above-trend growth into sub-trend growth. It has been a policy failure on any reasonable measure. The RBA and the government need to leave it be, and in so doing, allow confidence return.

The Sydney housing market is a great case study of what can happen when confidence rebounds. If they want consumer spending and non-mining investment to pick up then bureaucrats need to keep a much lower profile, speak less, interfere less and allow the private sector to do its thing.

On the data front there is very little of interest and so the global data will take centre stage. US retail sales on Wednesday night will of course be crucial, and then we get the Fed’s minutes on Thursday morning.

Bits and pieces otherwise include US inflation numbers, the Philly Fed index and the usual spray of Fed speakers. Nothing that’s likely to be view-changing.

Have a great week.

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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