Global stocks rallied on positive US data and expectations this week's Federal Reserve meeting will follow the G8's optimistic outlook.

Global equities pushed higher overnight and gains were solid. In Europe, the major indices rose 1.1 per cent on the Dax, 1.5 per cent on the CaC and 0.4 per cent on the FTSE100. Not so much in the way of euro-specific news that I could see, although there is lots of banter about merger or takeover activity in the telecom space (which was denied) and telecoms were the key outperformer in Europe.

More broadly, it seems to be more due to this growing sense of optimism among policy makers – allegedly. So for instance the G8, in discussing the world, has reportedly said that the worst is behind us and that the downside risks have been materially reduced. Contrast this with the growing sense of alarm in Australia.

Press reports also suggest that Ben Bernanke will take an optimistic tone on the US economy at this latest Federal Reserve meeting, noting a marked improvement in growth and hinting that if it continues, the Fed will likely taper QE soon. However, he will also, apparently, emphasise that the Fed is still going to provide lots of support to the economy – printing won’t end and, moreover, interest rate hikes are some way off. That the Fed often likes to leak things to the press as part of its market management might make this report credible, or it might not – who’s to know when the Fed is leaking or not?

Anyway, those reports were backed by a pick-up in some lower tier data, just adding to the mood. So we saw The Empire State Manufacturing Index shoot up to 7.8 from -1.4. Then the NAHB housing market index rose to 52 from 44. Good news on two fronts. The US growth trajectory is good and getting better, and QE won’t be tapered just yet and even when it is, the Fed will still be printin’.

US stocks were then 0.7-0.8 per cent higher on the major indexes – S&P at 1639, the Dow at 15,179 and the Nasdaq at 3452. By sector we saw strong gains in energy, tech and financials.  

Not really much else that was exciting – commodities didn’t share in the equity rally, crude was flat at $97.91, copper lost 0.2 per cent and gold fell a few bucks to $1384. On the rates side, US Treasuries sold off, the 10-year yield up 4 bps to 2.18 per cent, the 5-year at 1.06 per cent and the 2-year at 0.27 per cent. Then in the forex space, the Australian dollar is about 70 pips lower (0.9550), the euro about 30 pips higher (1.3367) and the yen is at 94.5 from about 94.9.

Looking at the day ahead, the SPI suggests Aussie stocks will rise 0.2 per cent. Apart from that the only data or macro news of note for Australia is the Reserve Bank's minutes. As I mentioned yesterday I’m not expecting too much out of these minutes as there isn’t a lot the Reserve Bank can say. They still want to cut, that much is clear, and increasingly the Australian dollar is the sole justification.

Sure, Goldman Sachs might be running around talking about another recession, but they do this every year. Indeed, they’ve shown themselves as one of the more alarmist teams out there and very keen to keep the discussion of recession alive – while not actually forecasting one. Why not talk about the 30 per cent chance of a housing boom next year Recall last year Goldman’s went on about the non-mining recession – again, keeping recession talk front and centre, while not actually forecasting one. Instead the Aussie economy had one of its best growth years in over a decade.

Keep that in mind as you read the Reserve Bank's minutes. I suspect they will also be quite bearish on the Aussie economy and will probably discuss the end of the mining boom and the need to rebalance growth again. At the same time, recent indicators continue to show the economy is broadly at trend, and leading indicators point to ongoing trend growth. It’s going to be tough for the board, which is why most of the discussion will focus on ongoing forecasts of doom and gloom, rather than actual doom and gloom. Note that pessimism in Australia occurs at the same time the G8 and the Fed, allegedly, are becoming more optimistic.

Elsewhere, we see Chinese property prices at 1130 AEST, while tonight we get US consumer prices and housing starts, the German ZEW survey and UK inflation statistics.

Have a great day…

Adam Carr is a leading market economist.

Follow @AcamCarrEcon on Twitter.

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