After an initial spike in bond yields, Italy’s political dramas (the current unelected PM is to resign and new elections will probably be held in February) don’t seem to have had any discernible market impact outside of Italy.
Italian stocks are down, sure, 2 per cent or so and the 10-year bond yield at 4.75 per cent (up 8bps) is back where it was on December 2. That said, the euro is actually about 40 pips higher and stocks on the other major indices made very modest gains – the Dax up 0.2 per cent, the CaC up 0.2 per cent, while the FTSE100 is 0.1 per cent higher. Not great gains obviously but there is no sign of alarm either. The fact is that political instability has been a long-term feature of the Italian landscape. Kind of like high debt to GDP ratios. It’s normal for them, which is probably why the French president, Francois Hollande, expressed absolutely no concern and reiterated that the worst of the eurozone crisis had past.
Over on Wall Street, gains were equally lacklustre although gains they were. There wasn’t really any data to talk of, so I suspect that we’re seeing a response to the generally better global data of late, tempered by fiscal cliff uncertainty. Also giving sentiment a boost was a report from McDonald’s showing strong sales – value meals apparently – and this was a sizeable proportion of the lift in the Dow (11pts to 13,166). Elsewhere the S&P500 was up 0.1 per cent (1419) at the time of writing (with an hour or so to go) with materials getting a decent boost following stronger Chinese data of late.
Trade data yesterday was disappointing, sure, exports were weaker than expected rising 2.9 per cent instead of the 9 per cent expectation while imports were flat. That said there is so much pressure on the Chinese to rebalance away from trade toward domestic growth (which is what we’re seeing) that this could be viewed as a policy success. Certainly data like that might, at the very least, get the US off their back for a while. Anyway, commodities saw a modest boost – in the metals mainly – with gold up about $8 to $1713, copper rose 1.2 per cent, although crude was off 0.4 per cent ($85.62 on WTI) and softs were mixed.
As for US treasuries there was virtually no action. The 10-year traded within a few basis points ending a basis point or so higher in yield (1.62 per cent), the 5-year sits at 0.62 per cent, while the 2-year is at 0.24 per cent. Australian debt futures were off a tick or two, with the 3s at 97.355 and the 10s at 96.910.
Otherwise, the Australian dollar is little changed at 1.0486, the British pound is 50 pips higher to 1.6017, while the yen is at 82.37. There wasn’t much more to report – German trade figures showed exports up 0.3 per cent, which was stronger than expected (-0.3 per cent) while import rose 2.5 per cent, considerably stronger than the 0.4 per cent expectation.
Looking at the day ahead, the SPI suggests Australian stocks will be little better than flat ( 0.1 to 0.2 per cent). As for the data, we see NAB’s business survey for November today (1130 AEDT). Business confidence and conditions remain well below average and indeed a survey conducted by CPA Australia found small business was the most pessimistic in the region. The Reserve Bank’s conduct of monetary policy is clearly to blame here as the economy’s fundamentals are strong, with our metrics the best in the advanced world. All their actions serve to do is justify some of the PR being spruiked – you know, the vested interests who want lower rates to try and restart the boom times. Fact is many of these people don’t even know what they are doing, because they’re destroying confidence in the process.
The lights aren’t all on upstairs that is for sure. I’ve said it once and I’ll say it again, the key threat to Australia is the absence of any leadership (corporate and public life). Many of our business leaders sit there cowering in the corner, paralysed with fear – unable to compete, unable to cope. Our stock market is suffering as a result. Some of the more irritating foghorn leghorns cry out to lower rates (lending rates are already the lowest since the late 60s) and lower the dollar lest the country collapse! Our political leaders have no strength or vision. No mast, no rudder.
Outside of the NAB survey we see little in our region, so tonight it’s worth watching the German ZEW survey, the US trade balance, wholesale inventories and the NFIB small business optimism survey.
Hope you have a great day…