As I write, we are looking at the biggest gain on Wall Street in about a week and the second-biggest gain in about a month. Still, gains on weren’t a patch on what we saw in Europe – with some indexes putting on their strongest performance in about two months. Like the Dax, which is up 1.7 per cent. Then the CaC was 1.5 per cent higher and the FTSE shot up 1.3 per cent. Hopefully it’s the long-awaited Santa rally. Better late than never as they say, but early days yet.
Naturally, there is no shortage of reasons for bullishness, but specific to last night (well the last 24 hours or so) we’ve seen some very serious signals that global growth is great. At the very least momentum is picking up. Think about what we’ve learned over the last 24 hours. Japan’s Tankan survey shows optimism is at its highest since 2007. The eurozone PMI, which came out last night, rose to 52.1 in December from 51.7 – the second-highest reading since mid-2011. Then in the US, industrial production was up a strong 1.1 per cent in November – the strongest gain in a year and the fourth consecutive rise. The only downside of any importance came from a ‘flash’ estimate of China’s PMI. And this wasn’t even that bad – little changed at 50.5.
Happy days, less happy in the States but at the time of writing the bid was still solid. The S&P500 was up 0.7 per cent (1788), the Dow put on 149 points to be at 15,905, while the Nasdaq was 0.8 per cent higher (4032). What about this good/bad news taper stuff that has tendency to weigh on stocks? It’s still there but I suspect investors have cottoned on to the Fed. It’s unlikely to taper this month. It would be a surprise if they did – and when they finally do it’ll be so tame as to be futile.
By sector, industrial, tech and energy stocks were the key outperformers on Wall Street, the latter getting a boost from decent gains in crude – Brent up 0.8 per cent ($109.15) and WTI up 0.9 per cent to ($97.4). Elsewhere, commodities had a decent session with gold up $7 to $1241 and copper was 0.5 per cent higher.
Meanwhile the US 10-year bond yield was up about 4 bps to 2.88 per cent, and then in the forex space the Australian dollar sits at 0.8949, which is little changed from yesterday afternoon. The euro is at 1.3765 (up smalls) while the yen is above target at 103.02.
Now for the Australian market today the key release will be the government's Mid-Year Economic and Fiscal Outlook. We get the Reserve Bank’s minutes as well, but there’s nothing more the bank can say. The exchange rate target dominates the landscape, and lobbyists and policymakers are prepared to push this to the detriment of the rest of the economy. They’re fools, enough said.
But MYEFO will be important. Now, a few things need to be said. I think the government is right to lay the blame for the deterioration at the feet of the Labor party. The fact is they failed to get the books in order – they had ample opportunity and they should have taken it. They aren’t solely to blame though. The economic consensus at the time was that Australian growth was weak, the RBA was harping on about consumer caution and the like. Meanwhile in the real world, 2012 economic growth was strong – the strongest in five years and consumers were anything but cautious, travelling overseas in record amounts and buying up cars like candy. The failure of the ALP was they didn’t use the years to 2012 to cut spending. The ludicrous economic debate here at the time – the push to lower rates and weaken the Australian dollar – gave the government the cover it needed to be lazy. And they were, but responsibility for the deteriorating budget position also lies with those who argued that growth was weak, the economy fragile. The fear was that if they cut spending we’d have a recession. Wrong.
So yes, the budget should in a much better position – that would have been easily achievable with some sensible policy planning and a bit of foresight. That it’s not isn’t this current government’s fault, but they shouldn’t waste the next few years.
Other than that, there is little data for our session – the SPI points to a 0.8 per cent gain. Tonight we see inflation data for the US and UK, and then the German ZEW survey. The US current account and NAHB housing market index are also out.
Have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.