Scoreboard: Feel good factor

A strong recovery has investors feeling good and markets hitting new records but the politicians haven't got the memo.

The S&P500 closed over 1800 on Friday night ( 0.5 per cent, with the Dow up 0.3 per cent and the Nasdaq up 0.6 per cent) for the first time ever – a new record!

There wasn’t really any data or news flow to drive the market higher as such. Unless you count the Kansas City manufacturing index which sky rocketed to 7 from 6. This is just the feel good factor. Investors feel good because the economic recovery is strong – one of the strongest on record when accurate comparisons are made – yet policy makers and their lackeys are at pains to tell you how bad it is – weak and anaemic. Indeed one of the weakest on record. This is to the point where people like Larry Summers feel the need to revise history and redefine past periods of prosperity as weak growth periods! Seems these guys will do anything to keep the printing presses going. The only way is up!

Anyway there were a few other interesting points to note although I’ll keep it brief. Firstly, just note that the German IFO survey showed the business climate index rising to 109.3 in November, from 107.4 which is a fantastic outcome when you consider the average is 101. Then note that the Australian dollar is travelling around 0.9177, which is little changed from Friday afternoon but down about 2 cents over the week.

So then looking ahead there doesn’t seem to be many major influences for the market. Same old for now I guess. For the US there is a lot of housing data out this week – pending home sales tonight alongside housing starts, building permits and the S&P Case Shiller house price index.

There are a few other indicators besides that – durable goods orders – but that’s the key stuff and as you can see there is nothing view changing. For global stock markets it’s really about momentum now, as the Fed aren’t going to be tapering any time soon.

So for domestic investors the most important data flow will probably come from home. It’s not that there is a lot of data or anything and in fact there are only three key releases, but they are critical.

So we get construction work done on Wednesday and private capital expenditure on Thursday. Credit numbers are then due on Friday. Now as you know, the consensus view at the moment is that the mining boom is over – that was the call over a year ago now and clearly subsequent data has shown this to be false. The boom will end, but it’s my view that the call went out perhaps two to three years to early.

The main consequence of the accompanying fear campaign from our policy makers and politicians is that was that we’ve spent an additional year obsessed with recessions and what have you. Not so great for consumer spending or non-mining investment I would have thought. But then we’ve wasted the good times.

Anyway, it’s not just about mining investment and the numbers will be important to see if the nation’s non-mining business leaders can get pull themselves together – to pull their heads out of the sand and start to plan for the future – and invest for it. Or alternatively, whether they will still cower with fear that the sky may fall on their heads!  

It’ll be difficult though because many business leaders and economists still seem to think that monetary and exchange rate policy – the government - is the cure all for them. It’s a cultural thing and not a good one – as a result the nation is at serious risk of being left behind in this global economic rebound.

For the record, the consensus of market forecasts suggests that construction may rise a bit – 0.5 per cent, but that private capex may fall a bit – 1 per cent or so. Although that follows a 4 per cent gain in Q2 and so most of that fall looks like a base effect. Either way these data points are very volatile, as is business investment more broadly – look out for any weakness because if the numbers are unexpectedly soft it’ll cause panic on the streets and global investors will likely dump our stocks.

Be strong. Have a good week. 

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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