SCOREBOARD: Good data vibrations

Wall Street fell after downbeat Fed comments, despite a deluge of strong US consumer and manufacturing data.

US stocks pushed higher initially and for good cause. There was some very positive data out, and while none of it was tier one, it stands in stark contrast to the incessant pessimism on the US economy. So consumer confidence spiked in September, the index rising to 70 from 61, still well below average (90), but the highest since February and a far cry from the recessionary trough of 25. Below average confidence isn’t affecting spending though, according to the latest US stats on consumer spending. The Labour Department stated that US consumer spending increased over 3 per cent in 2011 which is the fastest pace since 2006. Stall speed growth.

Then we saw another increase in house prices for July, 0.2 per cent following 0.6 per cent, and the Richmond Fed manufacturing index shot up to 4 from -9. This is a good result because the average is 2 and the index points to a bounce in manufacturing following a mid-year lull.

All good and well and this dataflow helped European stocks all close in the black. The Dax was up 0.2 per cent, the CaC up 0.5 per cent and the FTSE was 0.4 per cent higher. I guess a positive Italian bond auction helped the momentum as well. They sold some zero coupon bonds and inflation protected bonds, demand at both was strong. Still, the S&P500 only managed to hit a high of 1463 ( 0.4 per cent) before the offer came on.

The only thing I can see that sparked it, and certainly the press suggest this was the catalyst, were some comments from the President of the Philadelphia Federal Reserve Bank. He noted that "we are unlikely to see much benefit to growth or employment from further asset purchases” and obviously thinks QE was a waste of time. But the thing is this is well known. The majority of US economists don’t think QE infinity will do anything for growth, so his comments aren’t that surprising or shocking. The surprise would be if anyone did seriously think (that’s reasoned thought as opposed to a worthless opinion) it was going to lift growth and employment.

Whatever the case it was a solid sell-off and at the close, the S&P500 was down 1.1 per cent (1441), with the Dow only slightly better at 0.8 per cent (13457). The Nasdaq was off 1.4 per cent while the Aussie SPI fell 0.7 per cent (4353).

It could be the case that investors are getting increasingly nervous over Spain, I guess. They as yet haven’t asked for a bailout (they are waiting to see the fine print), Catalonia is pressing ahead with an election on independence, another region, Andalusia, is asking for aid from the central government, and there were more protests on the streets of Madrid over austerity.

The euro for its part ended little changed at 1.2903, having lost about 40 pips in trading yesterday afternoon. The Australian dollar is then about 50 pips lower at 1.0385 with British pound and yen at 1.619 (40 pips lower) and 77.8 respectively. Over in the commodities space, crude ended 1.3 per cent lower ($90.75), although copper was flat as was gold (off $1 to $1763).

US Treasuries then traded on a 6bp range on the 10-year, although end the end yields were only off smalls (1bp to 1.67 per cent). The 5-year finished at 0.64 per cent, while the 2-year was at 0.27 per cent. Aussie futures were up 6-7 ticks with the 3s at 97.58 and 10s at 97.010.

That’s most of the night’s events and news. It’s probably also worth noting that the German parliament is considering legislation tonight, widely expected to pass, that would limit high frequency trading, largely via lifting the cost of trades. All up, 40 per cent of trades in Germany are apparently high frequency trades.

So looking at the day ahead, there isn’t a lot of data for Australia today or anywhere else really. Tonight, it’s worth keeping an eye on German CPI and US new home sales.

That’s about the lot, have a great day.

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

@AdamCarrEcon on Twitter.

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