SCOREBOARD: Slow burn

There wasn’t a great deal of news out on Friday. There was some more talk about the end of QE and the Fed has apparently mapped out its strategy to unwind QE. What was missing here was any talk of timing. That’s what matters and the Fed’s latest communications reveal there are some voters wanting to increase purchases, not cut them.  

Anway, global equities had a decent session. Gains weren’t spectacular though so we’re talking an S&P that was 0.4 per cent higher (1633), the Dow was up 35 points (15118) although the Nasdaq rose 0.8 per cent (3436) which means that for the week, US stocks were up about 1.2 per cent. Otherwise we saw gold down $32 to $1436 for the session, while crude fell 0.4 per cent and copper was 0.4 per cent higher.  

There is of course lots of excitement about the Australian dollar as well, and as I write the currency sits around parity (its lowest in about one year), having dipped briefly below.

Now there is plenty of news flow for markets this week and some of the big-hitting macro news comes out over the next 24 hours, so we should have a good idea of the tone early on. For instance, this afternoon around 1530 AEST we see Chinese industrial production and retail sales. Be wary of the asymmetry in the reporting of Chinese economic data.  If the data is solid, then you will read many stories about how unbelievable the data is. If it’s soft, the data is believable and shows that China is weak.  

Then tonight we get US retail sales and the expectation here is that retail spending ‘stalled’.  From this and the current bias in how macro news is reported, it’s probably fair to say that we’re tending toward a softer week for the market then – this is certainly the path of least resistance: modest gains, drops, when they come bigger, and it will take decent upside surprises in this data to give the market a boost I would imagine. There is a smattering of other stuff I’ll talk about on the day - eg eurozone GDP and then industrial production and consumer price data for both the US and Europe.

For Australia, there are a few bits and pieces. Today we see home loans and NAB’s business survey and we get wage data on Wednesday. Of more interest, maybe, is the federal budget out Tuesday night and I think most economists looks for a deficit of around $15 billion this year and $5-$10 billion next year (2013-14). Up front I’m just not sure how seriously we should take it. Firstly and with any luck, we will have a change of government in September. Secondly, and based on past budgets, this government has a history of putting more emphasis on spin than on any real policy decisions. In past years the focus has been on savings, making the hard decisions to get back into surplus. As we saw none of that happened. So either way we can’t be sure what in this budget will end up being implemented or not.

On a broader note, and while I wouldn’t argue that the budget position is dire – yet – by any stretch of the imagination, the fact is we should be in much better shape. It’s not what we’ve got that I’m necessarily annoyed by. It’s the constant deception of this government and what we’ve lost. For instance, if the government had actually cut spending – actually cut it rather than just spinning that they’d cut it – by 1 measly per cent per year, that’s roughly $ 3.5 billion we’d be in balance by now. Maybe even a surplus. This ‘mindless austerity’ would have ‘smashed’ growth to 4.8 per cent from 5 per cent last year (nominal to June 2012). That is, the cut in spending wouldn’t have even been noticed.  It would have been easy to do but the government chose not to – instead they and their PR people chose to tell you about all the savings they were making when in fact they weren’t making any.    

For this budget, Swan has suggested they need to get “the big economic decisions right to support Australian jobs”. His references to mindless austerity and supporting jobs means there will probably be some big election spending in this budget, as we know, funded by debt and some tax hikes.  

Should be a hoot. Have a great week.