SCOREBOARD: Seasonal blues

Markets conditioned to a 'Spring slowdown' overreacted to disappointing, but not terrible, US economic data.

Poor, or rather disappointing economic reports out of the US are being blamed on last night’s rout. There were some big moves to the downside and risk was off in a major way – commodities were smashed and equities hit hard, while bonds rallied.

The thing is, said data wasn’t even that bad. Take the non-manufacturing ISM. A lot is being made of the fact it dipped to 54.4 from 56. Whoa, there! Take it easy people. A couple of points here or there is about as relevant as the pH balance of a stone’s shampoo. That index is still telling you the services sector is pumping. Ditto the ADP jobs report. Okay, it disappointed, suggesting that ‘only’ 158,000 jobs were created in March (200,000 expected) – but it’s still a good report.

I think the problem is we’ve had a ‘Spring slowdown’ every year since the global financial crisis, even though realistically in most cases there hasn’t even been slowing. But that’s the perception and market participants are conditioned. With that backdrop, maybe sensitivities are heightened. Could also be low volume trading prior to payrolls. Whatever the case, moves last night were way over the top.

Crude was smashed, falling 2.8 per cent to $94.4 on that data and a report that crude inventories are their highest since 1990. Copper was then down 1.5 per cent and even gold was hit hard – no safe haven flow here, just an indiscriminate selling orgy. It’s as if the Bilderberg group had issued a decree take some heat out of the market.

Naturally enough the drop in commodities weighed on energy and basic materials, but financial and consumer stocks were also hit hard – all down more than 1 per cent. The major benchmarks themselves were off 1 per cent on the S&P500 (1554) and about the same for the Nasdaq (3221), while the Dow was down 90 points (14,572). In Europe it was just as bad and the gains made in the previous session were largely given back, with the major indices off between 0.9-1.3 per cent.

Other than that we saw some big words from the San Fran Fed President John Williams, who suggested that the Fed’s benchmark for ending or tapering QE (“a substantial improvement in the labour market”) could be met by summer, with QE ending later this year. As interesting as his comments were, Ben Bernanke, William Dudley and Janet Yellen are the people to watch and they show no of wanting to end QE.

In any case, I think it would be highly misleading to suggest there hasn’t already been a substantial improvement in the labour market – and yet the Fed still prints. Add to that, Yellen, who is touted to take over from the Bernank, said quite openly that even if there is a ‘substantial improvement’ by her definition (which she hasn’t given), that doesn’t mean QE would end.

No promises were made, you see. Comments like that deserve nothing but contempt from me – policymakers are out of control and don’t know what they are doing. Note also that James Bullard (St Louis Fed), who is a voter on the FOMC, said it was full steam ahead and the Fed saw no reason to change course just yet – only ID data continues to be good. He has said that for years though, the data did continue to be good and yet the Fed went on with QE.

As for forex, the Australian dollar almost hit 1.05 overnight but ended the session little changed at 1.0462. The euro was 40 pips higher at 1.2847, the British pound was over 60 pips higher and the yen is at 92.8 from 93.5.

So anyway, it’s obviously not going to be the best of days on the SPI, which is currently off 0.7 per cent. Other than that, we see building approvals and retail sales data for Oz at 1130 AEDT.

There isn’t a lot apart from that, just a bunch of central bank meetings – the Bank of Japan decision is today (not yesterday, as I had said) and we also get the European Central Bank and Bank of England. No changes are expected from the ECB and the BoE at this meeting although the new incoming governor of the Bank of England has made it very clear he wants to print more – the UK government wants more money and so it’s a very good bet at some point. As is more printing from the Bank of Japan as I mentioned yesterday – the government has said it wants ‘bold’ monetary easing from the bank.

If economists weren’t such a useless lot there would be an outcry about how monetary policy is being conducted. But no, instead they just abandon the principles they’ve held dear for years. They would have all guffawed their little hearts out if you had suggested printing money as a policy option just a handful of years ago. That they did it so readily is scary.

Anyway, just watch out for initial jobless claims and a speech from the Fed’s Yellen. If there is a change in heart at the Fed you’ll hear it from her or Dudley.

Have a great day…

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