Scoreboard: Retail boost

Wall Street bounced back on solid retail spending figures, while growing regulatory interest in commodities softened prices for oil, gold and copper.

What goes down, must go up – or something like that. Especially when US retail spending spikes and exceeds expectations by twice over. Sure, maybe that’s not what headline spending did, although it was exactly double expectations at 0.2 per cent.

But 0.2 per cent is softish and  in no way would have seen Wall St rebound to the extent it has. The S&P500 is up 0.9 per cent (1834), the Dow is 83 points higher (16339) and the Nasdaq (4174) is 1.5 per cent higher. What got all the attention was the 0.7 per cent lift in ‘core’ sales, which is obviously a very good result.

The discrepancy between the two largely occurred because of a big drop in car sales, although poor weather has shouldered the blame. The more important message from the data is that Christmas spending wasn’t as bad as previously thought. Coming into this data, the press was full of stories of disappointing sales from a number of retailers; today’s figures dispel that notion.

Also helping were better-than-expected earnings (excluding one-offs) from JP Morgan and a solid rise in net income from Wells Fargo, although financials were by no means the key outperforming sector. That honour goes to tech stocks and basic materials, although all sectors were up.

Other than that there was a bit of US dollar buying, although this manifested largely on dollar-yen – the   US dollar is now buying 104.2 yen from 103.3 yesterday afternoon. This also had the effect of weakening the Australian dollar, which is now at 0.8964 from 0.9035 at 1630. The euro itself was little changed at 1.3676 (marginally stronger).

With the stronger US dollar and better data, gold dipped $8 to $1242. With the stronger retail sales, it was strange to also see copper down 0.4 per cent and Brent off 0.3 per cent. (WTI was up 0.7 per cent to $92.48). A stronger US economy generally means higher commodity prices, but the bigger picture here is growing regulatory interest in commodity markets. The latest from the Fed is that it is seeking comment on whether it should place additional restrictions on banks in order to curb their trading and owning of physical commodities. Thus the softness.

Other than that, note the US 10-year bond yield was only a few basis points higher at 2.387 per cent. There were a few data points worth noting. In the US, business sales rose by a strong 0.8 per cent in November and inventories were 0.4 per cent higher.  Then we had two Fed speakers who were both voters this year. Philadelphia Fed president Charles Plosser said that we shouldn’t read too much into the weak payrolls and that the Fed should continue to taper and not leave raising rates too long. These were comments shared by the Dallas Fed president Richard Fisher, who said he would support another taper even if it caused an equity correction. The final piece of good news was that European industrial production surged 1.8 per cent in November to be 3 per cent higher annually.

For the day ahead, the SPI suggests our market will be up 0.5 per cent, while debt futures (3s and 10s) were off 3 to 4 ticks (96.97 and 95.815). Not much in the way of data for our region, Australian car sales at 1130 and Japanese machine tool orders is about it. For tonight’s session, we get European trade figures, the Fed’s Beige Book, the Empire State manufacturing index, producer prices and US existing home sales. The Fed’s Charles Evans also gives a speech.

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

Follow @AdamCarrEcon on Twitter.

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