Scoreboard: Markets mellow out

Positive data and a delayed taper are keeping global markets calm, while closer to home the planets are aligned for strong growth.

Data and news flow was light in volume, yet global equities managed to push higher, with European markets up 0.3 per cent to 0.4 per cent, while Wall Street is sporting gains around 0.1 per cent to 0.3 per cent with about an hour left to trade (S&P500 at 1766, Dow at 15,632 and Nasdaq at 3933).

In terms of the data, we saw two months’ worth of factory orders for the US – down 0.1 per cent in August and up 1.7 per cent in September. Overall the trend is up and of course we know the ISM index points to acceleration in the manufacturing sector.

It’s all good and I think that data is certainly helping the market and if not helping, then it’s not hindering. Also not hindering is rhetoric from the Federal Reserve. The Fed’s Jerome Powell (voter) spoke last night and really just said that the timing of a taper is uncertain. This may not be earth shattering news, but uncertainty means quantitative easing for longer at the end of the day.

It’s only when the Fed starts expressing some confidence that people will start to worry about the tapering. On that note, the St Louis Fed president James Bullard, reckons that inflation is low so the Fed can wait, although he said a December taper is still possible – which of course we know it isn’t. In any case, bond yields were marginally lower, with the US 10-year Treasury down about 3 bps at the low recovering some of that to be off only 1 bps to 2.607 per cent.

For the price action elsewhere, we saw commodity prices generally weaker again – crude down smalls (WTI at $94.57), gold up smalls ($1314), while copper fell 1.3 per cent. Otherwise we saw the Australian dollar up about 30 pips to 0.9508, euro is about 35 pips higher and yen is at 98.54 from 98.75.

There are few bits and pieces other than that. On the domestic scene we obviously saw some very positive data with retail sales. Now recall that this survey has severe limitations which don’t always make it useful as an indicator of consumer spending. Yet to the extent that yesterday’s result is reflective of broader spending, then it perhaps shows sentiment returning. This is consistent with my view that the only headwind to growth is confidence.

Otherwise all the planets are aligned for strong growth. Recall that consumer spending fell sharply from the middle of last year (prior to that it was running around trend – at that the Reserve Bank was slashing rates 75 bps over two meetings and 175 bps from November 2011. That and the associated discussion surrounding those cuts, that were used to justify those cuts alarmed consumers and business and activity fell. In contrast the Reserve Bank has only cut twice this year, the talk is they are on hold now. That alongside the change in government has led to a lift in confidence and spending.

For our market today, the SPI points to a 0.1 per cent move. Otherwise it’s all eyes on the Reserve Bank at 1430 AEDT. No cut expected at this meeting and most economists now think the Reserve Bank will hold for the foreseeable future. The tone of their statement will be all important then and in it I’ll be looking for clues as to how prominent the exchange rate target is following the change in government and recent rhetoric from the governor.

Not much outside of that, a Chinese services PMI is released at 1245 AEDT, the Bank of Japan Governor gives a speech this afternoon and we’ll see the non-manufacturing ISM index and Euro zone producer prices tonight.

Have a great day…

Adam Carr is a leading market economist.

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