SCOREBOARD: Risk recoil

Wall Street turned down sharply overnight, but the weaker US dollar failed to stir commodity prices.

Risk off last night and falls across equities and commodities were quite solid. As best I can tell, it’s not so much the case that there was any really disastrous news out last night. Indeed if anything it was the opposite with US wholesale sales up 0.5 per cent and inventories up 0.2 per cent. Now this isn’t a tier one indicator and I’m not suggesting for one minute that it should be market moving - but is does add to the generally positive tone coming of the US at the moment. This data is showing solid sales growth and the fact that inventories are rising in tandem tells us that wholesalers are feeling positive about the outlook. Add to that a small business survey showing business feeling more optimistic. It seems to me that we’re just seeing a bit of heat coming out of the market after a strong rally into the end of last week. Oh and central banks are causing all sorts of havoc of course.

Yesterday, the Bank of Japan’s decision to not provide more stimulus to addicted markets saw the yen appreciate - $US1 buying about 95 yen from over 98 this time yesterday and stocks there down about 1.5 per cent. The yen wasn’t the only big mover though - euro is up over a big figure to 1.3315 and the Australian dollar is up about 80 pips to 0.9440.

The unusual thing this time around is that the weaker US dollar didn’t translate into any gains in commodity markets. Normally you’d see commodities pick-up as the US dollar falls. Not this time. Crude was off 0.8 per cent to $95, copper fell 1.4 per cent and gold was off another $8.7 to $1377. And of course weaker commodities in turn hit stocks - the key underperforming sectors were energy, basic materials and financials, each of those down around 1.4-1.6 per cent. Not a pretty session. The major indices themselves were off with the S&P500 at 1626, the Dow off 116 points at 15,122 and the Nasdaq 1.1 per cent lower at 3436.

NAB’s business confidence figures out yesterday were worth a comment as well. The key thing to note is that despite another rate cut by the Reserve Bank of Australia and a sharp depreciation in the Australian dollar, we didn’t see any meaningful improvement in conditions or confidence - both of which remain extremely weak.  This is consistent with my non-consensus view that the campaign to lower the Aussie dollar and to lower interest rates, is doing more damage to the economy than the ‘high’ Aussie dollar or higher interest rates were doing. Not helped by this constant political instability the Labor party has delivered the nation. You can see this because if the price of money was the problem, if consumers and business thought rates were a problem, then as they eased, confidence would be lifting, but it’s not. It isn’t working quite clearly and calls for more cuts are absurd in that environment. More than anything I think some of the nation’s economists and many commentators need a very large dose of Prozac. Don’t forget that the recession call or the downturn call is not new in Australia and has been made in every year since the GFC. I think these calls might be a touch more credible if they hadn’t been made every year so far, I mean these analysts are just playing the odds, same call every year just hoping they’ll right one year. Crazy game. So don’t worry about the prognostications of doomsayer economists, peddling the same rubbish they have in previous years. The Aussie economy is doing alright and we’re just going through another bout of needless hysteria.

For the day ahead we see consumer confidence at 1030 AEST. Recall that in May we saw confidence slump following the Reserve Bank’s decision to cut rates again. Consumers are rightfully concerned and feeling anxious given the panicky commentary coming from economists like those at Goldman Sachs and Ross Garnaut, who tell us cheery things like: a recession is possible and that we must all take a hit to our standard of living. Why? Because the dollar is too high! Not we don’t and no it isn’t. But this is why confidence falls when the Reserve Bank cuts rates - people think something is wrong and this isn’t helped by the army of doomsayers and their PR people who are quick to tell you year in and year out that 'yeah - something is really wrong'. On a not unrelated issue, the Productivity Commission found that American car manufacturers like Ford get a much greater percentage of industry assistance from Australian taxpayers than Australian manufacturers, small businesses and farmers. There’s something very wrong with that.

Other than that, we see eurozone industrial production and UK employment numbers.

Have a great day…