SCOREBOARD: Market stamina

Stocks dipped only slightly overnight despite poor data coming out of China and Japan.

When you look at the run of fairly negative data yesterday (downward revision to Japanese GDP, weak Chinese trade statistics) I think the market’s resilience is telling. Stocks were weaker sure, as were commodities, but magnitudes are nowhere near what we’ve seen in the past.

In Europe for instance the major stock indices were off 0.01 per cent on the Dax, 0.03 per cent on the FTSE100 and 0.4 per cent on the CaC. Nothing major obviously and while the performance on Wall Street was a little more, how can we say, melancholy, we’re still not talking doom and gloom – especially when the major indices are at or near 5-year (or 12-year in the case of the Nasdaq) highs. So the S&P500 ended 0.6 per cent lower (1429), the Dow was 0.4 per cent lower (13254) and the Nasdaq fell 1 per cent (3104).

Bathing in the afterglow of the ECB’s decision to print? Waiting for the Fed to QE forever? Maybe. Probably. I’m sure that’s all a part of it as was the announcement of further modest stimulus measures from the Chinese and South Korean governments.

But I think there is also a recognition that China’s economy and the Asian region more broadly isn’t as weak as suggested by some of the dataflow. Chinese imports for instance were weaker and iron ore imports in particular were down 20 per cent year-on-year. But think about it. Iron ore prices are down over 40 per cent for the same period so, volume growth was still very strong – up 20 per cent or so.

A big part of the problem is we just can’t trust any of the news flow or commentary. Three track CD recall – it’s the same every year (Europe imploding, US double dipping, China hard-landing) and it’s been wrong every year. So trying to determine what is actually going on is very difficult.

I’m looking at the data cautiously, certainly wondering what is going on (it has slowed, but how much?), prepared to revise my view, but reluctant to buy into the hype that has occurred every year and been wrong. I’ll talk more about it at later date – suffice to say things are a little more serious in 2012 than in 2010 (or even 2011). At that point when we were talking about all of this stuff, data was actually accelerating – strongly in some cases – and yet the discussion still took place. See the problem?! In any case I do think there is a certain hesitation on behalf of punters as well.

So commodities were mixed, but again we’re not talking moves of a major magnitude. Crude was only down 0.2 per cent ($96.25), copper actually rose some (0.6 per cent) and gold lost $12 (1728). The CRB index overall was 0.5 per cent higher and that’s with all the weak data we saw yesterday. Forex moves were then small, the Australian dollar was down 20 pips to 1.0335, the euro was down 25 pips or so to 1.2757, while sterling is little changed at 1.5990 as was Japanese yen at 78.27.

On the rates side, US Treasuries initially sold off, the 10-year hitting a high yield of 1.69 per cent before the bid returned seeing yields close only 1 to 2 bps higher (1.656 per cent). The 5-year followed a similar pattern and ended at 0.64 per cent while the 2-year is at 0.25 per cent. Australian futures were off a tick or two with the 3s at 97.52 and the 10s at 96.95.

There wasn’t really much else of note. Well that’s not entirely true – French industrial production surged in July, rising 0.2 per cent with manufacturing production up 0.9 per cent. This blitzed expectations for a 0.5 per cent fall and confirms my view that the European downturn will be modest and that a trough has either been reached or is close at hand. Then, having surged over recent months, US consumer credit growth fell in July only by $3.2 billion.

As for the day ahead, the key Australian data is NAB’s business survey for August. Renewed talk of an Australian downturn, end of the mining boom and the need to slash interest rates will probably weigh on confidence again, notwithstanding an improvement in the European crisis. Although hopefully it won’t outweigh it. Outside of that, Japanese machine tool orders are worth watching and then we see US trade data tonight.

That’s about the lot, hope you have a great day….

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

@AdamCarrEcon on Twitter.


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