SCOREBOARD: Growth fever

Wall Street made gains overnight on the news that the US economy recorded growth above trend in the third quarter.

The US economy grew at an above trend pace of 2.7 per cent in the third quarter, up from an initial estimate of 2 per cent. That brings average growth over the last year pretty much to trend, at 2.5 per cent. All the freaking out over US growth prospects came to nothing again for the third straight year, yet those loons at the Fed keep printing money as if it was normal. Indeed all the recent Fed rhetoric is consistent with the consensus view that the Fed will start buying bonds again in the new year – no surprises.

Moving on, jobless claims were another reason the bid was on US stocks last night, remember they surged in the wake of the east coast storm but now are settling down. For the week to November 24, claims fell over 20,000 to 393,000 – oh and pending home sales continue to rise, up another 5.2 per cent in October.

All good and thus far we’re seeing reasonable gains across the major US indexes, although at one stage, gains had been given back as the 'he said, she said' squabble took over. This time it was congressional leaders, with Republican house speaker Boehner stating that "no substantive progress” had been made. As for the Democrats, they’re saying it’s all the GOP’s fault. Senate majority leader Reid said he hasn’t yet seen a serious offer from the Republicans, to which Boehner replied: "have too”. Reid: "have not” "too”, "not” etcetera, etcetera, etcetera. The offer didn’t last long though and stocks soon rebounded. With about an hour to go we’re talking an S&P around the 0.5 per cent mark at 1417, a Dow 47 points higher at 13032 and a Nasdaq 0.7 per cent higher at 3011.

Over in Europe, most of the data flow was pretty positive as well, and quite clearly the global economy is rebounding. Swiss GDP was stronger than expected, Italian business confidence picked up in November and there was a modest improvement in business sentiment indicators across the rest of the eurozone.

I should add that the Italian Treasury sold off €6 billion in 5-year and 10-year bonds at the lowest rates in two years. The hunt for yield is back on, and why not? Quite clearly the Europeans aren’t going to allow yields to push too high for either of these countries – neither country is insolvent, so their bonds are a very strong buy – to maturity.

In the secondary market though the Italian and Spanish 10-years fell sharply initially, by 12bps or so, but soon bounced back. Stocks however all ended stronger, with the Dax up 0.8 per cent, the CaC 1.5 per cent higher, and the FTSE rising 1.2 per cent. The euro was then about 30 pips higher at 1.2974.

As for price action elsewhere, we saw some decent gains in the commodity space, with crude up 1.6 per cent to $87.89, and copper was up about the same, while gold was about $9 higher to $1725. The Australian dollar is sitting about 45 pips lower to 1.0430. Nothing interesting happened in the Treasury space, the 10-year was off a couple of basis points to yield 1.62 per cent. The 5-year is then at 0.63 per cent and the 2-year at 0.26 per cent.

Australian futures had a much stronger session with the 3s and the 10s 5-6 ticks higher at 97.380 and 96.92, presumably because of the Australian depression in 2013. Yep that’s right people the capex numbers yesterday show an alarming situation – with investment expected to surge only 20 per cent next year! Only 20 per cent!

Even though I mentioned it would be the case on Monday, I literally cannot believe the extent of the wailing and grinding of teeth that I’ve seen. You see, some people reckon a planned 20 per cent surge in mining investment next year (after 75 per cent last year) means the Reserve Bank should hit the panic button and slash rates next meeting.

And this is all because it’s less than the 33 per cent increase expected last quarter – because a 20 per cent spike is just too soft right? I’ve even seen the recession call made – 20 per cent! Get a grip people! What is wrong with you?

Too many people have lost sight of the big picture. It’s been the case for some time, but just when you think the economic discussion couldn’t possibly get any worse, something always jumps up to surprise you. Common sense is an extremely scarce commodity it seems. For what it’s worth, third-quarter GDP isn’t looking so bad on the back of recent investment numbers – it should be another solid quarter of growth.

Looking at the day ahead, the SPI suggests that the Australian market will rise 0.6 per cent, then in terms of macro data there is only the Reserve Bank’s private sector credit numbers at 1130 AEDT to watch out for. Prior to that we see Japanese industrial production figures and at 1230 AEDT a Chinese business sentiment indicators is released. Tonight, US data is confined to personal income and spending.

That’s the lot, have a great weekend…

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

Follow @AdamCarrEcon on Twitter.

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