SCOREBOARD: Stubborn stocks

Strong Chinese economic data, a US debt ceiling extension and strong earnings all failed to inspire markets as much as expected.

Turns out that China’s economic data no longer excites people. We got nothing – nothing – in response to Friday’s figures showing the Chinese economy accelerating. At the very least the economy is nowhere near a hard landing, which is worth something right? The data showed China’s economy rose 7.8 per cent year on year, up from 7.4 per cent. Industrial production was 10 per cent higher and retail sales were 15 per cent higher. Yet even commodities were reasonably subdued on Friday’s session – with crude flat, gold down smalls and copper up 0.5 per cent.

Wall Street itself put in a mediocre session with the Dow and S&P up 0.3 per cent and 0.4 per cent respectively, while the Nasdaq fell 0.04 per cent. Better than in Europe I guess where the major indices were weaker – Dax off 0.4 per cent, CaC down 0.1 per cent, although the FTSE100 was up 0.4 per cent. If it wasn’t for the fact that we also saw two other great pieces of news I wouldn’t be so surprised.

Firstly the GOP has agreed to extend the US debt ceiling by three months. The Republican Senate Whip actually made comments to this effect on Thursday when he said that the debt ceiling would be raised: "I will tell you unequivocally, we're not going to default." But the GOP formally announced it on Friday. Now as I mentioned last week, I’m pretty sure that Congress is constitutionally bound to increase the debt ceiling unless they come up with a deal to cut the deficit in any given year. So whether the delay is three months, three days or three years, it doesn’t matter. The debt ceiling will go up, and it will always go up where there is the need. The second piece of good news came from the corporate space where GE and Morgan Stanley reported positive results.

For the week then, the S&P500 rose 0.9 per cent (All Ords up 1.3 per cent), gold was up $27 ($1687), crude was 2 per cent higher ($95), while the Australian dollar was 40 pips or so weaker (1.0510 as I write).

For this week I imagine it will be just as subdued as the week prior if not more so. For a start we’ve got a Martin Luther King’s (Junior) birthday today so markets are closed in the US. Added to that, there isn’t a lot of data out, either domestically or abroad.

Aussie CPI is the key number at home (Wednesday 1130 AEDT) and it would ordinarily be a crucial release. Ordinarily. Recall that last quarter, consumer prices surged 1.4 per cent, with the average of the core measure rising 0.8 per cent. Annual rates were at 2 and 2.4 per cent respectively. Indeed over the last six months, core inflation annualises to something like 2.75 per cent, approaching the top of the RBA’s band and a clear acceleration. That the Reserve Bank went on to still cut rates with a low unemployment rate and trend growth goes to show that this data isn’t as important as it once was.

There are just too many people, for a variety of reasons unrelated to the national interest, who want lower rates forever, and I just don’t think something as irrelevant as reality is going to stave off these demands. Do you ever wonder why we get economic crisis or recession? This is it – you are witnessing it in motion. That’s not to say we will definitely get one, but with mindless stupidity like this, it is the main risk down the track. For the December quarter, the consensus of analyst expectations is that headline inflation will rise 0.4 per cent, which would bring the annual headline rate to 2.4 per cent from 2 per cent. Core inflation is forecast to rise 0.7 per cent, which would leave the annual rate around 2.5 per cent.

Overseas, the key data to watch includes the Chicago and Richmond Fed indexes on Wednesday, which accompany existing home sales for December. Then we see the weekly jobless claims figures Thursday night and on Friday new home sales. Not much.

In Europe we see German producer prices tonight, the ZEW survey Tuesday night and the PMIs on Thursday. Of the business surveys out that week the most important is the IFO survey, which we see on Friday. Fourth quarter UK GDP is probably also worth a look on Friday.

Hope you have a great week...

Adam Carr is a leading market economist.

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