Scoreboard: QE composure

Global stocks rallied overnight and this time it actually looks like it had to do with strong economic data. In the new normal this is strange because strong data means less money printing, which apparently is good. That is, unless you’re the Fed I guess, in which case strong data, weak data, whatever – it all means money printing.

But firstly to that data. Initial jobless claims fell to 334,000 in the week to July 12 from 358,000 the week prior, and backing that positive print was a spike in the Philly Fed index. This shot up to 19.8 in July from 12.5 – a great result, the highest since March 2011 and well above the average around 7.5. The US economy does indeed look to be accelerating.

The bid was on pretty much from the open then, the high reached not too long after (S&P500 up 0.7 per cent at that point) and most of that was held for the session. Gains were broad-based, although financials (on better than expected earnings from Morgan Stanley this time), energy and utilities outperformed.

At the close then, the S&P500 was 0.5 per cent higher (1689), the Dow rose 78 points (15,548) and the Nasdaq underperformed and was pretty much flat (3611). In Europe, gains were stronger the major indexes up between 0.95 per cent and 1.44 per cent.

Now remember that this strong data occurs in an environment where there is some anxiety about a QE tapering. I suspect a part of the reason why markets were so easily able to throw off QE fears in the face of this strong data is because Fed Chairman Ben Bernanke has been playing down the idea of a tapering, if ever so gently, and last night he continued with that.

In particular he stated that the recent tightening in financial conditions brought about by rising bond yields was unwelcome. He noted three factors behind the recent rise in yields: better economic news, a misunderstanding about what a QE taper is (i.e. it’s not a tightening in policy) and a one-off unwinding of leveraged risky bets. Clearly the Fed, while expecting some lift in yields, wasn’t looking at the almost 100 bps lift that they got. So for me this again is another step back from an exit. Having said that, US Treasury yields actually pushed higher last night –j not much mind you, 5 bps to 2.53 per cent on the 10-year.

There were a few interesting bits and pieces otherwise. On the not-so-positive side, the City of Detroit has filed for Chapter 9 bankruptcy – the biggest US city ever to do so. The city is seeking to restructure more than $US17 billion in debt.

Still on debt, German Finance Minister Wolfgang Schaeuble played down the idea that there would be more debt relief for Greece in the form of writedowns. What he suggested instead is that if Greece sticks to its commitments, then after this program ends in 2014 another may be negotiated.

In terms of the price action, the Australian dollar was little changed from yesterday afternoon at 0.9171 – ditto for the euro at 1.3105 – while the yen stayed at target at 100.5. Finally for the data, in the UK, retail sales rose by 0.2 per cent in June after a 2.1 per cent increase the month prior.

For the day ahead, the SPI suggests Aussie stocks will rise by 0.4 per cent. Otherwise, there isn’t much in the way of data so it should be fairly quiet today for our session. In fact it’ll probably be quiet tonight as well – no more Bernanke speeches and little in the way of data.

Have a great weekend.

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.