A barrage of good data on both sides of the Atlantic acted to lift sentiment last night, stock markets just managing to outperform in Europe, with data there showing the eurozone is coming out of a recession. Specifically, eurozone industrial production rose 0.7 per cent in June after a modest fall the month prior, to be 0.3 per cent higher annually. Complementing that, the German ZEW survey showed a vast improvement in August, the current situation index shooting up to 18.3 in August from 10.6, while economic sentiment more broadly rose to 42 from 36.3. Good outcomes, and stocks pushed higher as a result, with the Dax closing 0.7 per cent higher, the CaC up 0.5 per cent, and the FTSE100 0.6 per cent higher.
In the US, consumer spending continues to improve and retail sales were stronger than expected in July. Not on the headline – this was a touch softer than expected at 0.2 per cent (versus the forecast for 0.3 per cent) – but core sales, which strip away volatile moves and give a better idea of underlying momentum, rose 0.5 per cent (compared to the market forecast for 0.4 per cent). That the US economy has decent momentum isn’t news of course, and then there is the not so small issue of the taper.
So gains on Wall Street were softer, though still positive. At the bell, the S&P500 was up 0.3 per cent (1694), the Dow was 31 points higher (15,451) and the Nasdaq was 0.4 per cent higher (3684). There wasn’t too much to note in terms of sector performance, other than noting tech stocks were a key outperformer for the session after ‘activist’ investor Carl Icahn revealed he had taken a large stake in Apple.
Now, as to the never-ending speculation on the taper, we had Federal Reserve Bank of Atlanta President Dennis Lockhart (non-voter) state that a taper could come at one of any of the next three meetings. However he also said that his current read was that economic momentum was uneven and that by September he didn’t “expect to have enough data to be sure of my outlook … For that reason, I don’t think a decision that commits the Fed to a full phase-out of asset purchases and lays out a precise, beginning-to-end path for doing so would be advisable”. It sounds like he’s pushing for very small open-ended reductions.
Despite that, the US 10-year yields spiked 10 bps or so to 2.72 per cent – probably on that stronger global data. Price action elsewhere was nondescript. Commodity prices, with the exception of gold (down $13 to $1320), were up a bit – crude 0.4 per cent ($106.5), copper 0.3 per cent, and there wasn’t much action on forex either. The Australian dollar was off a bit to 0.9111, the euro was off 50 pips to 1.3263, the yen was at 98.2 from 97.36 and the British pound was off smalls, 1.5448.
There were a few things to note otherwise: German inflation was confirmed at the top of the target at 1.9 per cent in July, while UK inflation remains well above target at 2.8 per cent year-on-year in July.
For today, the SPI suggests Aussie stocks will rise a further 0.3 per cent. The key data for Australia comes with consumer confidence at 1030 AEST and wages at 1130 AEST. On the confidence side, we already know the Reserve Bank rate cuts have done nothing to lift confidence and as we found out from yesterday’s NAB business survey, they’re making things worse. Even the lower Australian dollar is not helping, which shouldn’t come as a surprise. But policy makers are particularly inept at this point – targeting the Australian dollar at all costs, and the costs have been significant. There’s been a lashing to confidence and, of course, there is also the not insignificant risk of distortions created from ultra-low rates. Even the real estate industry is warning against the dangers of sparking another boom. Policy makers are oblivious though.
Tonight we get the Bank of England’s minutes, UK employment data, eurozone GDP and in the US, producer prices.
Have a great day…
Adam Carr is a leading market economist.
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