Scoreboard: Shopping fatigue

Despite another pick-up in American manufacturing activity, stocks remain subdued, travelling around zero as I write. I’m surprised by that, for sure, as the ISM index at 57.3 in November (up from 56.4) shows that the US economy grew for the 54th consecutive month. The index itself is at a 2.5-year high or thereabouts and well above the average of 51. Great news, right? Especially as it was accompanied by a stronger-than-expected lift in construction activity (0.8 per cent in October compared to a forecast of 0.4 per cent).

Also great news was the 3.3-point lift in the employment index (on the ISM) to 56.5, which adds to the overwhelming evidence pointing to further strong employment gains. And yet for stocks – nothing. Perhaps the equity market is getting hit by taper fears, or maybe it was all the press talking about the weak Thanksgiving sales. It is interesting though because the National Federation of Retailers still expects 4 per cent growth in sales for the holiday period in total, which isn’t bad growth. So I don’t know what the fuss is.

So with about an hour to go, the S&P500 is flat (1805), the Dow is off 42 points (16045), and the Nasdaq is 0.3 per cent lower (4049). The biggest impact from that strong ISM and construction data was actually to be found in gold and on the 10-year treasury note. Gold fell about $29 to $1222, while the 10-year treasury yield was up 7 bps at the high to 2.81 per cent before settling at 2.79 per cent or 5 bps higher. Strong growth and taper fears. Then in the crude space, there was a pretty big jump of about 1.2 per cent on West Texas Intermediate ($93.8) and 1.4 per cent on Brent ($111.5). Stronger growth means higher crude consumption, or something like it.

That was the key news flow, although there were a few other interesting tidbits. In the UK, for instance, the British pound dropped about 65 pips – and that’s with a solid lift in the UK’s purchasing managers index. This rose to a three-year high of 58.4 in November from 56.5 which, given all the other data-flow, would have to put pressure on the Bank of England to raise rates – which in turn should have seen the pound higher or at least steady against the US dollar. Punters instead are focussing on the US numbers, I guess, and tapering fears, as the euro was also off 60 pips or so. The Australian dollar meanwhile was off about 45 pips to 0.9104.

To the day ahead, the SPI suggests our stocks will be off 0.4 per cent. Other than that we see some economic data out at 1130 AEDT – the current account, retail sales and government spending figures. Out of that, I’m looking most closely at the net export contribution and the government numbers as they are key inputs into tomorrow’s GDP figures.

The Reserve Bank’s decision is at 1430 AEDT and no change is expected. Out of the press release, the only thing I’m looking for is how much emphasis the board puts on the Australian dollar. The rest of the economic data-flow at the very least demands a tightening bias but the board’s misguided focus on the exchange rate has distorted policy. In terms of the global data-flow, there’s actually not a lot out tonight – minor stuff like the eurozone’s producer price index, UK house prices and the ISM index for New York.

That’s it, have a great day…