SCOREBOARD: Seasonal boost

The unofficial start to the US earnings season wasn't all that bad. Alcoa's results were stronger than expected, revenue especially so, which gave a modest boost to stocks overnight. All good and well, but it was the accompanying commentary that was far more interesting I think. The company is very optimistic about demand for aluminium, and consequently its price, on the back of an expected lift in Chinese demand, strong demand in the transport sector (there is a backlog on plane orders apparently) and in a lift in US construction activity.

It's only one stock, sure, and there are many more reports to come. However it does continue the optimistic tone that's been set for 2013 so far.

In Europe we saw modest gains on the Dax and CaC of around 0.3 per cent, although the FTSE was up 0.7 per cent. Banks were one of the key outperformers here, most likely due to the changes made to Basel III overlayed with growing evidence that the world's major economies aren't as shabby as everyone thought. Alcoa's results seemingly backed this consensus. Telecoms also did well on the back of reports there are discussions afoot to establish a pan-European infrastructure network.

Onto Wall Street, and with about an hour to go the S&P500 is up about 0.2 per cent to 1460, the Dow is about 58 points higher at 13386, while the Nasdaq is 0.6 per cent higher at 3108.
A bit of a fuss is being made that stocks have performed well over the first five days of trading. Apparently this is quite important, or so the coneheads tell us. They point out that if stocks rise for the first five days of the year, the market has gone on to record gains for the whole year – 85 per cent of the time. Exciting stuff. I prefer looking at fundamentals, but it is certainly an interesting observation – and I think it's the right tone. Prospects are good and fear is dying down; indeed the VIX index is at at five-and-a-half year low. A very good sign indeed.

Price action elsewhere was, once again, non-descript. Commodities were weaker but moves were small. Gold for instance is off $6 to $1656. Downside moves on copper were insignificant – flat basically – and it was the same for crude, at $93.12. For forex, the Australian dollar is at 1.0508 or 15 pips or so higher from 1630 AEDT. The euro is then 20 pips lower, at 1.3053, while yen is at 87.72 and sterling is 30 pips weaker at 1.6015. There was nothing on rates – the US 10-year yield was a couple of basis points lower and sits at 1.85 per cent, the 5-year is at 0.76 per cent, and the 2-year is at 0.24 per cent.

Bits and pieces otherwise – only a quick word on those Aussie retail sales figures yesterday. First up the fall probably doesn't mean anything. I know the monthly numbers get a lot of press but this attention is misplaced. At the end of the day, the survey just isn't good enough – or broad enough I should say – to outweigh company accounts, the national accounts and other data, on car sales and overseas holidays, that show consumer spending at a solid clip. It's much stronger than what is suggested by this survey.

As a result of that, and on the weight of the evidence, I see no reason to change my view that consumer spending remains robust and that the consumer will continue to drive economic growth – just as they have over these last few years.

As for the data flow, last night it was very light. German industrial production rose 0.2 per cent in November, following a 2 per cent fall in October. Annually production is 2.9 per cent lower.
For today we can expect Australian building approvals at 1130 AEDT and Chinese trade data at 1300 AEDT, while tonight both the European Central Bank and Bank of England meet. No changes are expected for either. For the US, we see jobless claims, wholesale inventories and a couple of Fed speakers (George and Bullard).

That's about the lot, have a great day…


Adam Carr is a leading market economist.

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