Scoreboard: Great job

Wall Street lifted to fresh records as strong growth in jobs, housing and consumer spending offset weak confidence.

Another day and another record for US stocks – this beast is unstoppable. Gains were modest in some cases though, and at the time of writing, the S&P500 was up 0.4 per cent (1769), the Dow had risen 0.6 per cent (15,655) while the Nasdaq was 0.2 per cent higher (3947). Not bad all considered and especially as the headlines on the economic data are universally bad. Which is a pity because the data itself was actually quite good for the most part.

Now, true to say that US consumers are feeling a little less confident, and according to the conference board, the index fell 9 points in October to 71 – about 20 points below average and the biggest all in two years. Nevertheless this soft confidence, no doubt caused by the brazen stupidity of the Democrats and Republicans in recent weeks, isn’t stopping house prices surging nor consumer spending accelerating. Just don’t tell the Fed.

So far then the US economy is looking at strong jobs growth, a decent lift in consumer spending, stronger business sales (which rose 0.3 per cent month-on-month and more than 4 per cent year-on-year, according to data out last night) and surging house prices. There’s nothing to be blue about there.

As to the specifics, on the headline figures US retail sales were not only weak at -0.1 per cent but worse than the expectation of 0 per cent, or flat. Nevertheless when you scratch beneath the surface a more robust picture emerges, with sales advancing 0.5 per cent on the ‘core’ measure (which excludes volatile items). And this result was stronger than expected, if only just, and a pick-up from the previous month.

Then the S&P Case-Shiller index showed house prices advanced another 0.9 per cent in August to be 12.8 per cent higher over the year. All good, although the net effect of this was a stronger US dollar and lower bond yields. This pushed the Australian dollar another 30 pips lower (now sitting at 0.9478) and following euro down, which was also off 30 pips to 1.3743. The yen then shot up (weakened) to 98.15 from 97.52 and the US 10-year bond yield was off a few bps (2.506 per cent). Otherwise commodities did nothing of note – crude was down 0.4 per cent ($98.2), copper rose 0.4 per cent and gold was down $7.7 to $1344.

There were a few bits and pieces otherwise – producer prices in the US fell 0.1 per cent in September and are only 0.3 per cent higher annually, reflecting the fact that commodity prices have done nothing over this period, notwithstanding the equity bull run – which is truly quite bizarre. Then following investigations into manipulation of commodity markets and interest rate markets etc, two more investment banks – UBS and Deutsche Bank – are currently being investigated for manipulating the foreign exchange market.

That’s largely it. Otherwise it was interesting to note Reserve Bank governor Glenn Stevens’ comments yesterday. He suggested that investors, owner-occupiers, self-managed super funds – everyone, basically – should have realistic expectations for house prices going forward and not get carried away. I couldn’t agree more, and given the backdrop home buyers face (limited stock, hardly any construction and record low interest rates – the lowest in a generation), I think people should be sensible and restrict themselves to expecting high double-digit growth rates. The RBA has two problems: an exchange rate target and an interest rate setting geared for a housing boom. Good luck with that.

For today, the SPI suggests we can look forward to a 0.4 per cent gain for our market. Then on the data front, we see Japanese industrial production at 0950 AEDT and HIA’s new home sales for Australia. That’s largely it for our region.

Tonight the key focus will be the Fed rates and money printing decision. No one expects any change, although I think they’ll want to signal to the market that they continue to discuss it and that the taper option is still on the table… even though we know it’s not.

Otherwise we get Spanish GDP data, the eurozone business climate indicator, German unemployment numbers and then inflation figures for Germany and the US. The US ADP employment report is also out.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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