Stocks pushed higher overnight for the simple reason that they can. Global growth is looking pretty solid, yields are low and there is just so much cash sloshing around – well, where else are you going to go.
There wasn’t much news flow and even the data flow was light but what was out was positive. For instance, over in Europe industrial production rose 1 per cent. This follows a period of weakness and one month may not be anything to really get excited over but it does fit in with the idea that Europe is on the mend that the worst has passed. Similarly in the US we saw the NFIB small business optimism index for April. Not a major release at all, but it did show a stronger-than-expected increase in business sentiment, nothing major – 92.1 from 89.5 – but it does serves as another reminder that the US economy has healed well.
With little reason to be bearish, US stocks put in a solid performance following a decent session in Europe (Dax was up 0.7 per cent, CaC 0.5 per cent and the FTSE was 0.8 per cent higher) and the S&P closed 1.01 per cent higher (1650), the Dow put on 123 points to 15214 and the Nasdaq rose 0.75 (3462).
Gains were broad-based across sectors and energy and basic material stocks actually outperformed the index which I’m surprised by, given the broad-based falls across the commodity space. Again, the weird feature of this equity bull market is that commodities aren’t sharing in it. Meanwhile, crude was down almost 1 per cent to $94.3, copper fell 25 and gold was off another $10 to $1424. At the very least, the positive economic dataflow we’ve seen of late should be supportive of commodity prices – especially that gain in European industrial production.
A part of the story obviously is the strengthening US dollar. A stronger US dollar leads to weaker commodity prices and we are seeing broad-based greenback strength. For last night the euro slipped to 1.2938 or 60 pips weaker, yen was up 102.3 from 101.3 and the Australian dollar fell to 0.9894 from 0.9978. The Aussie, in part, does actually look to have been hit by last night’s budget as well, which is odd as the budget itself does nothing to actually weaken the dollar and in fact should be lifting it – government spending isn’t being cut and so it’s not really the case that fiscal policy is making room for monetary policy or that monetary policy has to offset some large fiscal consolidation. Moreover, revenue growth is still quite solid – all of which points to ongoing robust growth momentum. With that in mind I think that Treasury’s forecast for sub-trend growth next year is on the low side. For a start, the Treasury is in effect suggesting that record low rates will do little to boost household spending and of course there is little chance, based on the budget, that public demand will actually fall. All of a sudden growth is well above trend.
Other than that we saw a decent sell-off in the US Treasury space. The 10-year yields rose 5 basis points to 1.97 per cent which brings us to a 20 basis point spike over the last week. The bond market at least is taking the idea that QE might end seriously. The 5-year yield then rose 4 basis points to 0.86 per cent, while the 2-year is at 0.25 per cent.
For today there are a few data pieces worth noting – motor vehicle sales and the wage cost index, both at 1130 AEST. Not much else out for our trading session, but tonight we see European March quarter GDP figures and UK employment numbers, not to mention the now useless Bank of England Inflation report. Finally, US data includes producer prices, industrial production, the Empire State Manufacturing survey and the NAHB housing market index.