Scoreboard: Retail runaround

Wall Street was mixed overnight as positive retail data added to the growing expectation the Federal Reserve will soon taper its stimulus program.

Most of the data out last night was rock solid – for the US at least – and complements the string of results showing a stronger US. Retail sales data was the main release last night and it showed spending surged again in November, rising 0.7 per cent, after a 0.6 per cent increase in the prior month. That’s a 7.8 per cent annualised lift just on those two months – very strong.

It’s fair to say not all the data flow was great and jobless claims also spiked in the latest week (December 7) by 68,000 to 368,000. Now that’s the biggest jump in a year, but there is a very good reason why we probably shouldn’t worry about that result, two actually: Firstly it goes against the trend, which has been for lower claims, and that’s been in place for a long time. A spike like that with no cause is a statistical quirk. Moreover, the run of holidays – Veterans Day, Thanksgiving etc, makes estimating seasonal factors very difficult and the Labor Department itself warns against reading too much into the spike.

Balancing a stronger economy with the growing push for a taper means stocks did little on Wall Street. At the time of writing, the major indices are mixed around 0 for the S&P500 (-0.1 per cent) and the Nasdaq ( 0.1 per cent), although the Dow is off a firmer 0.4 per cent. In fact the biggest moves that I can see were in the precious metals space – gold slumped about $30 to $1227, and silver fell over 4 per cent.

Now that could be taper fears I guess – but I suspect, more than that, it reflects governments clamping down on the market. The latest move came from the German government, their regulators, who have demanded documents from Deutsche Bank as part of a probe into the manipulation of gold and silver markets. That was the excitement though – well that and Brent crude which fell 1 per cent to $108.6. Outside of those two moves, price action was sedate – the US 10-year bond yield rose 1 bp to 2.876 per cent and then in the commodity space WTI crude was unchanged at $97.49 and copper was flat.  

Now moving on, the Reserve Bank Governor Glenn Stevens gave an interesting interview to the Australian Financial Review last night – it’s a long interview that covers a lot of territory, but one aspect that is getting a lot of press is his preference to see a lower Aussie dollar over lower rates in order to ease financial conditions. That article helped see the Australian dollar slump 120 pips last night and the currency now sits at 0.8936. Fair to say though that the euro also fell about 50 pips to 1.3746 and the yen rose to 103.27 from 102.58, so it wasn’t all Stevens – it was a US dollar move as well – but maybe about half the move was the RBA.  

Anyway, did he also say that you can’t be too precise about these things, but that 85 cents seemed about right. That’s a very interesting target he offers just there, the first time the market heard of it was Senator Kim Carr nominated it as a target in the Gillard days. Also interesting was that the governor acknowledged that for the depreciation to be effective in stimulating the economy it needed to be a ‘real’ deprecation and that would require lower real wages.

A few data pieces worth noting – in Europe, industrial production fell 1.1 per cent in October, after a 0.5 per cent fall the month prior. Back to the US, business sales rose 0.5 per cent in October, while inventories were 0.7 per cent higher. That’s it though.  

So, for our market today, the SPI suggests another fall of 0.3 per cent. Outside of that there isn’t much happening - little data for our region, while for Europe, we see employment and Italian government debt estimates. US data is light - producer prices only.

Have a great weekend…

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