SCOREBOARD: Iron certain

Good jobless figures in the US and the UK coming out of recession are good signs for the global economy. Iron prices continue to rally.

Another listless night for punters it seems - difficult period really as I’ve already discussed - and there was nothing strong enough to really swing things one way or the other. That’s not to say the session was devoid of important signals. Just nothing strong enough to convince investors to push the global rally further - we’ve got the fiscal cliff people and it’s going to be a doozy.

Anyway, and for starters, US jobless claims fell sharply for the week (October 19), down to 369,000 from 392,000 which is just about where the 4 week moving average is. This is good as there had been some concerns that claims were rising and the US slowing. Not so. Claims remain consistent with strong jobs growth and we’ve got every reason to think this will continue.

When the market saw that data, US stocks initially jumped, and hit a high (S&P500 up 0.8 per cent) soon after. It wasn’t to last though. In part this might be because durable goods failed to really show a pick up as well. I mean they spiked 10 per cent for the month, sure, but most of it was aircraft or defence and follows a 13 per cent fall the month prior. More to the point - capital goods less defence and transport were flat although this follows a modest rise the month prior. So it’s more neutral than anything, but markets need something great. Earnings too are of a concern and Best Buy suggested its earnings will be significantly lower. Then again it’s not all bad news and some of it is good. Proctor and Gamble for instance reported earnings that beat estimates, as did Aetna.

In any case, the offer on, US equities gave those gains back and spent the rest of the session hovering around 0. As I write, the S&P 500 is just above, 0.1 per cent (1410), with the Dow flat (13082) and the Nasdaq the same (2980). Our own SPI was up 5 pts (4506).

Now this is all good and well. But there were two other signals which make me more confident in my non-consensus call that the global economy is accelerating out of a temporary lull.

Firstly, iron prices are bouncing back. Bears were literally jumping for joy as prices came tumbling down. We had political leaders, economists and policy makers all calling the end of the mining boom, but how foolish this looks now – and the RBA cut rates on the back of it. It pays not to panic as I warned at the time. Note the rebound now – iron ore is currently back up to $120 - down from the peaks sure but these are very high prices.

While we’re on it, commodities elsewhere had a better session of it last night but not much. So gold rose $11 to be at $1714, crude was up a modest 0.4 per cent ($86) while copper fell 0.3 per cent.

The second key signal is that the UK finally came crawling out of recession in the September quarter, following three quarters of negative growth. GDP rose 1 per cent in the third quarter which was above expectations, although under the circumstances I don’t think that’s anything to get excited about. Annually GDP is unchanged.

As for the Olympic games? This would have given a very modest boost to the figures. Now I don’t think the key takeaway here is that everything is back to normal for the UK, whichever way you cut it, the economy is still sluggish. That said, and this is the key takeaway – it is another piece of evidence that global economy is actually accelerating, not deteriorating.

As for price action elsewhere, there was nothing to really say for rates, but then there rarely is these days – fact is central banks are the biggest players in the market at the moment, so there is no market price signal as such. For what it’s worth, the US 10 yr Treasury note traded within a 5bp range but is little changed from 1630 (up 2bp) at 1.826 per cent. The 5yr is then at 0.82 per cent, with the 2yr at 0.32 per cent. Aussie futures were down 5 ticks or so – 3s at 97.32 and 10s at 96.77.

As for the AUD, it spent a good portion of the European session heading toward 1.04. As US markets opened the currency eased off some and is little changed from 1630 (1.0361). Euro had a similar session but is a touch weaker at 1630 – 20pips or so to 1.2945.
So for the calendar today, there is no data for Australia worth noting and not much else for the region – Japanese consumer prices, although I don’t know why they bother. Tonight the key US data is the third quarter GDP figures. The consensus is that the economy grew by 1.9 per cent for the quarter, up from 1.3 per cent the previous quarter. Other than that we also see the Michigan Uni’s final estimate of October consumer confidence.

That’s the lot, have a great day and a great weekend…

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