Scoreboard: Market magic

Wall Street saw solid gains with politicians out of the way, while over 60 per cent of US companies so far beat their earnings estimates.

Another day and another record it seems. At least for stocks (on the S&P500) in the US given that Congress, while not really having solved anything, is at least out of the of the picture for a bit. And when policy makers get out of the way, magic happens. Gains weren’t necessarily spectacular, but solid enough with the S&P500 up 0.7 per cent (1744) and the Nasdaq 1.3 per cent higher. The Dow however was only 0.2 per cent higher – partly because of disappointing earnings from IBM.

Elsewhere though, earnings appear to be good with over 60 per cent of companies that have reported so far beating estimates. Of note, Google was nearly 14 per cent higher on better earnings and revenue estimates. Ditto GE, well except for the 14 per cent gain part – that stock was up a mere 3.5 per cent. That was about the extent of the action though as US Treasuries did little – 10-year yield up a few bps to 2.59 per cent and commodities were mixed around 0 – extremely strange given the acceleration in Chinese growth. Anyway, about the only other thing to note about the price action is that the Australian dollar is up around 0.9671 or 50 pips or so higher from Friday morning.

So that’s where we are at. Where we go from there is tough to pick though. A lot of the economic data that was withheld during the US budget crisis is set to be released this week, the most notable among that is US payrolls. There are a few things to note about the data going forward though. Firstly it won’t matter for the Federal Reserve, they’re not tapering till next year, probably mid next year at the earliest at this rate. How do we know this? Because even the hawks at the Fed suggest they can’t taper while the data has been distorted by the shutdown – and people are talking distortions that would last months. In any case we’ll be sitting down watching another episode of ‘The Crisis’ early next year and the Fed won’t taper around that.

Now if that’s the common market expectation and as far as I can tell it is, then good data might actually be taken as good data for a change – ie with no risk of a taper. Certainly expectations for payrolls are decent – strong actually – with 183,000 expected. But then we return the usual problem associated with payrolls reporting. Strong is the new weak – in that results, even if they are rock solid, are presented as weak – or not strong enough and this, perversely can see stocks edge down. We’ve seen this repeatedly in this expansion and with so many having an interest in keeping quantitative easing going forever, it’s likely that bias will persist. So that data is out Tuesday night and in addition to that it’s probably worthwhile keeping an eye on existing home sales tonight, new home sales Thursday and durable good on Friday.

On the domestic front, consumer prices on Wednesday is the key release. Headline and core inflation rates are currently around the middle of the target at the moment and the expectation is that while quarterly growth rates will be solid – 0.8 per cent on the headline and 0.6 per cent on the core, annual rates will drop to 1.8 per cent for the headline and to the low 2s for the cores. For mine, these figures almost certainly underestimate true underlying inflation pressure in the economy which I would estimate are still running around the middle of the band. Outside of those figures there isn’t much for our market – maybe the speech from the Deputy Reserve Bank governor on Thursday will be of interest.

A buy one, have a great week.

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.