Black Friday sales may have fallen relative to a year ago, and that of course is attracting some headlines, but the fact is the holiday period – including Thanksgiving and the week long bargain-fest that preceded it – is expected to lead to strong sales overall according to reports. The retail federation is looking for at least 4 per cent growth (note how they don’t talk the economy down like our own retailers association) and early reports of strong sales (average spending up 6 per cent) saw consumer stocks bid – Target up 1.2 per cent and Wal-Mart up almost 2 per cent. As it is, the Dow put on 172 points, the S&P500 was up 1.3 per cent while the Nasdaq rose 1.4 per cent. It should be a good day for the All Ords then – the SPI suggests something like 0.7 per cent.
Cross over to Europe, and even here there was good news on the economic front. The German IFO survey, much more reliable than the PMIs we keep hearing about, suggested current conditions remain robust with the index up to 108.2 in November from 107.2. The expectations index rose to 95.2 from 93.2 – stocks all rose with the Dax and CaC up 0.9 per cent, while the FTSE100 rose 0.5 per cent.
So far so good. The world doesn’t appear to be ending. Two immediate threats: obviously the fiscal cliff, which no one seems to care about at the mo’ and Greece. On the latter point, the Europeans are talking about Greece tonight, expected to make a final decision, and everyone seems confident that some kind of deal will be nutted out. If so it would be a calm week. That’s especially the case when most of the major data is expected to be supportive of risk. So for instance we get another estimate of US GDP on Friday – growth expected to be revised up (we also get durable goods orders, some regional manufacturing indexes and the like).
In Australia, the major economic release is concerned with business investment. The big problem with business investment being a key driver of economic growth, as I have highlighted in previous quarters, is that it is extremely volatile – or lumpy. You get quarters where investment growth shoots up 10 per cent or whatever, only to fall 3 per cent the next. We saw that in late 2011 when private business investment shot up 15 per cent in the third quarter and then fell almost 1 per cent in the next.
Remarkably, Australian economists fell to their knees in that quarter, wailing and grinding their teeth – convinced that all was lost and that we were all surely doomed. Even the RBA noted, at the time, concerns over demand being weak – or something like it and went on to cut rates. Nevertheless, to everyone’s total and abject humiliation, it turns out it was just the usual quarter-on-quarter volatility and demand went on to accelerate sharply.
The economic landscape is not too different from that now. Fresh from the recession that we never had in 2009 and the non-mining recession that wasn’t in 2010-11, economists have been concerned about the mining recession that we weren’t even close to in 2012. The boom is over! Politicians, business leaders, and cab drivers – even the RBA suggested as much (which is why they are at pains to lift demand in other areas to compensate).
This to my mind guarantees two things. Firstly, that growth is still actually very strong. Secondly, and noting the volatile growth profile, if business investment is weak again this quarter, the RBA will most assuredly cut rates – heck they may even cut rates even if investment isn’t weak and growth strong – just like they did in mid-2012. More broadly the wailing will become louder. We get two important updates in that regard. Construction work done on Wednesday (1130 AEDT) and capex on Thursday (same time). These are both very important feeds in to third quarter GDP and are well worth watching.
Truth be told, 2013 is looking like it could be a good one for the globe and thus Australia. Decisions from incompetent politicians everywhere and chief executives in Australia (our leadership crisis) can change that sure, but with the information we have at hand, Europe is at least stabilised and the US economy is accelerating – China has turned a corner. I wouldn’t have thought that is an environment where cashed up corporates would cut back on investment – investment is about future growth right? Well, given all the almost recessions we’ve had over these last few years, I would have thought we’d be wearing shades – coz our future’s so bright (sorry Timbuk 3 flashback). Fact is Australian corporate leaders aren’t in a position to drag the chain anymore so I don’t think we’ll see a sustained fall in planned investment. It may dip this quarter on the back of press reports and that seems to be driving perceptions, but I would expect a rebound in Q4 and beyond as it becomes clear the world isn’t ending.
While the investment figures are the most important we also get the RBA’s credit figures on Friday at 1130 AEDT. Otherwise there is plenty of global data which I’ll discuss on the day.
Have a great week…