SCOREBOARD: New Year swell

Volumes were light, but the extent of upward market moves overnight was a welcome surprise.

Hello again, happy New Year and welcome to 2012 – let’s hope it’s a good one. With many still away or in summer mode, I’ll probably save the 2012 crystal ball gazing until next week – lots to talk about for sure – so for now, I’ll just leave it to the night’s events. Just as well as there’s quite a bit to talk about on that front.

More generally, I’m looking at recent price action with a fair degree of surprise to be honest. Not so much because I think the price action is unreasonable or overdone from a fundamental or even market sentiment perspective (admittedly on light volumes, but still). It’s more the case that there just really wasn’t any major news item. Why for instance are Aussie 3-year futures off 20-30 ticks? And the Australian dollar up almost 4 cents?

News on the global manufacturing front looks to be better, sure, and that’s definitely a part of it – but seriously – 20-30 ticks? So we’ve learnt over the last week that the Chinese PMI rose to just above 50 from 49 and last night we found out that the US ISM index rose to 53.9 in December (6-month high) from 52.7 the month prior (historical average about 51). Orders, production and employment were all up in a good sign that the US economy accelerated in the December quarter. This is all good sentiment boosting stuff and so it was ‘risk on’ last night. But more generally the data isn’t signalling a dramatic change in the hard data, which has consistently outperformed the indicators for some time.

Moves in the commodity space were particularly solid in any case, silver rising 6.3 per cent so far, gold up $20 to $1604 and copper up 2.8 per cent. Crude was up over 4 per cent at the time of writing on both WTI ($103.05) and Brent ($112.2), although tensions with Iran are clearly another heavy influence, in addition to the better manufacturing data. The latest here is that the Iranians have warned the US to keep its carrier group out of the Persian Gulf, which was removed when the Iranians began military exercises near the Strait of Hormuz. In the forex space, we saw our dollar put on another 82 pips to sit safely above the 1.03 mark at 1.0374 with the euro and sterling up by similar magnitudes (80 and 99 pips, respectively, to 1.2980 and 1.5552).

There wasn’t a lot of data or news flow otherwise. The FOMC minutes this morning didn’t seem to have a major impact on markets either way. The key new news was that the US Federal Reserve will now publish Fed funds forecasts on a quarterly basis when it provides other economic projections (next round due after the January 24-35 meeting). Officials would provide forecasts for the first hike, although with current guidance still suggesting rates will remain near zero till the middle of 2013, that’s not exactly earth shattering news. Still in the US, construction spending rose 1.2 per cent in November after a 0.2 per cent decline the month prior, while in Germany, unemployment fell by 22,000 in December and the unemployment rate slipped to 6.8 per cent from 6.9 per cent.

Back to the price action, equities have started 2012 on a good note, with the S&P500 closing up 1.6 per cent at 1,277. Stocks were bid from the open, hitting a high shortly after (S&P 2 per cent). From there they just hovered really, basic materials, financials and energy stocks the key outperformers (although all sectors bar utilities were stronger). The Dow put on 180 points (12,397), the Nasdaq added 1.7 per cent (2,649), while our own SPI is 0.9 per cent higher at 4,106.

As for the debt market, US Treasuries sold off the big move on the 10-year ,which was up almost 8bps in yield to 1.96 per cent. The 5-year, in turn, rose over 5bps to 0.89 per cent, while the 2-year was a bit over 1bp higher to 0.26 per cent. Aussie futures don’t seem to have done a lot from 1630AEDT yesterday – the 3s at 96.76 and the 10s at 96.13.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.

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