Scoreboard: Look both ways

A slew of global data could move markets either way this week, while local confidence indices will shed light on the impact of record low rates.

Positive economic news out of China showing – you guessed it – still very strong growth rates had some impact on markets on Friday, although we weren’t really seeing that in that in the US indices. There’s much debate about China – frequent calls of a hard landing – but once again, the data showed that instead of falling into some vortex, its economy accelerated at a rapid clip. Industrial production was up 9.4 per cent, retail spending up 13.2 per cent and fixed asset investment up 20 per cent. Very strong growth rates indeed.

Now, this did boost sentiment a bit, though nowhere near as much as it should have given the talk. In the commodities space, crude was up 2.5 per cent and copper rose 1.2 per cent. Gold itself was up smalls ($4 to $1314). This is turn helped give European stocks a boost, with miners leading the FTSE100 up 0.8 per cent, although the Dax and CaC underperformed, rising 0.2-0.3 per cent. Similarly, the Australian dollar is up 100 pips from Friday morning to 0.9209.

Over on Wall Street, the only sign of this China-led bid was on basic materials, which were the key outperformers for the session at a solid 0.8 per cent rise. Everywhere else the screens were red, with even energy stocks falling about 0.5 per cent, although telecommunications and utilities were the key underperformers. Overall, the S&P500 closed 0.4 per cent weaker, the Dow was off 72 points (15,425) while the Nasdaq was 0.3 per cent lower (3660).

It wasn’t that there was really any offsetting negative US data out to weigh on the market. There was only the minor data of US wholesale sales – which were decent, rising a further 0.4 per cent in June after a 1.5 per cent increase. Inventories fell 0.2 per cent.

So it comes down again to tapering uncertainty, I guess – there's a market lull, whatever the case, with US stocks off about 1 per cent altogether last week. Nothing major, and I’m not sure that’ll really change this week either. It’s not like we’re going to find out for sure about any tapering plans. The US data flow is decent as usual, but nothing that’ll really change any of the major themes. US retail sales are out, but we know consumer spending is bouncing back, even if the pace has moderated a bit. In addition to that we see housing starts, jobless claims of course, and some inflation data.

Elsewhere there are a few bits and pieces that could throw things around – Japanese and European GDP figures, German inflation figures and the ZEW survey, and of course industrial production numbers for both sides of the Atlantic. That might be enough to get talk going of a global acceleration/deceleration, depending on what the numbers show – worth watching, whatever the case.

In Australia we get Treasury’s pre-election outlook on Tuesday, but we already know what the numbers will be roughly, as we saw the Reserve Bank’s statement Friday. The problem with this document, as with the Reserve’s statement, is that it is useless.

Think of it this way: on the best guess, the global economy is expanding at a decent clip and is expected to lift next year; the US economy is doing well, and China, despite the talk, is also growing at a rapid clip. The cash rate has been slashed to emergency levels, the lowest since the ‘60s, and lending rates more broadly are also down sharply to their lowest since the ‘60s. The Australian dollar has depreciated more than 12 per cent.

Now, despite this, Treasury and the Reserve Bank are of the opinion, as shown in their forecasts, that none of this will have any impact on growth. Not one bit. Policy it seems is completely ineffective, as is global growth. Whatever. The only thing I can think of to try and understand this gibberish is that it’s all political. It doesn’t make sense otherwise. Maybe it’s part of this plan to jawbone the dollar and explain away fiscal ineptitude.

A competent government would be in surplus by now, given Australia’s strong growth metrics over the years. The costs have been huge though, and I don’t see the benefit. I think policy makers have made a major mistake to be honest – a very stupid mistake. And we’re seeing that in the confidence figures, of which we get another update both on business (Tuesday) and consumers (Wednesday).

That’s most of it, have a great week…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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