It was 'risk on' last night and global equities have seen a decent bid so far, taking Australian dollar and euro with them – both up a big figure as I write – 1.0709 (1.0740 high) and 1.3168 (1.3219 high), respectively.
It seems that global manufacturing accelerated in January and while some of the indicators are only showing a modest expansion, it’s still in the right direction. China’s PMI pushed higher in January and is over 50, same with the final estimate of the German PMI – at 51. Even in the UK, manufacturing pushed higher for the month, the PMI rising to 52 from 49.7. The PMIs are all well and good, but in reality they have been underestimating the industrial cycle for a while.
The main survey that punters were focusing on was the ISM in the US and it didn’t disappoint too much. The increase for January was a bit weaker than expected, sure. But it still rose – to 54.1 from 53.9 (54.5 expected). While the production index fell, we saw new orders, deliveries, backlogs of orders, and exports all higher. The employment index dipped but it remains solid. In fact the only worrying sign was a sharp increase in the prices paid index to 55.5 from 47. Comments from respondents were generally positive, most noting that conditions were improving, if not already strong, and that the outlook for 2012 was good. The other good news was that US construction spending picked up for the fifth consecutive month, rising 1.5 per cent in December.
So, with no offsetting commentary about Greek talks stalling or what have you, the bid was on. European stocks surged with the Dax up 2.4 per cent, the CaC up 2.1 per cent and the FTSE up 1.9 per cent. In the US, the S&P is up 1.2 per cent (1327) with about an hour left to trade – not too far off the high (1.4 per cent). In any case, financials, basic materials and industrials were the key outperformers, although all sectors rose. The Dow was then up 123 points (12755), the Nasdaq rose 1.3 per cent while the SPI was 1.4 per cent higher (4253).
Treasuries managed to sell off, although in the context of the rally that we’ve seen over the last week or so moves were tame. The 10-year yield was up only 4bps (from 1630 AEDT) to 1.844 per cent, the 5-year was up barely 2bps to 0.725 per cent, while the 2-year didn’t do much at all – 0.2186 per cent. Aussie futures followed that lead, 3s down 6 ticks to 96.83 and 10s down 5 ticks to 96.22.
Not much else to really tell you. For the price action, commodities were generally stronger – especially metals where we saw a 1.6 per cent lift in silver and 1.2 per cent rise in copper, while gold rose $8 to $1745. Crude was mixed though after data showed inventories rising more than expected. So WTI was off 0.9 per cent ($97.6), while Brent rose 0.6 per cent ($111.7). As for the data, the ADP employment report was a little bit weaker than expected in January, jobs up 170,000, but there isn’t much else to it.
Looking at the day ahead – in NZ we get ANZ commodity prices at 1100 AEDT and then at 1130 we see Australian building approvals (for December) where a modest increase of 2 per cent is expected. The December trade balance is also out at 1130 where a surplus of $1.2 billion is expected. Tonight, watch out for eurozone producer prices (December), US initial jobless claims and Bernanke’s testimony to the House.
Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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