SCOREBOARD: Taper tease
What a night, huh? As citizens try and figure out just what exactly the last three years have been about – a complete waste of time in my view – global punters are trying to figure out what’s going on in the US, and what exactly that means for markets.
Turns out that first quarter economic growth wasn’t as strong as initially estimated – 1.8 per cent now from the previous estimate of 2.4 per cent. That’s one of the bigger downward revisions for the third and final estimate – usually it doesn’t change much and the US government puts it down to better or more updated information on spending on services (health) and things like trade etc. Anyway the point is that the US has gone from trend growth to something quite a bit below – dump the dollar! Buy bonds! Sell – or even buy – stocks!
They were bought mind you, and the bid was strong – in Europe the Dax was up 1.7 per cent, the CaC 2.1 per cent and the FTSE 1 per cent higher.
It seems that for last night last least, bad data was good as it means less chance of a tapering. Bad-good news is the new normal. These moves have also been supported by recent Fed commentary that has sought to downplay the QE exit or tapering talk. Last night it was Richmond Fed president Jeffrey Lacker’s turn, who said that growth was likely to be sluggish for a couple of more years – “this is all we’re capable of” – which of course means that QE may not even be tapered.
Recall that a taper was based on the Fed’s quite optimistic growth forecasts (I’m saying optimistic and I’m a US bull!). Not to be outdone, the head of the European Central Bank effectively said super stimulatory policy would be around for a long time yet, and of course we know the People’s Bank of China is singing a sweet song of a seduction: “we will provide more liquidity” – oh yeah, baby.
The S&P closed 0.96 per cent higher (1603) which now means, following yesterday’s gains, that the index is only about 3 per cent off its peak – which doesn’t even count as a correction, really. The Dow is up about 149 points (14,910) and the Nasdaq is 0.9 per cent higher (3376).
Good gains driven by healthcare, utilities and consumer stocks. Underperforming were basic materials, tech and energy – it’s not like crude prices fell though (up smalls to $95.46), although metals certainly did. Gold in particular is, again, one of the more bizarre moves, inconsistent with the narrative being followed by other markets. Mo’ money printing is usually good for gold, good for commodities in general – but we’re not seeing that. It was a huge fall – almost $50 to $1225, and silver was off 5 per cent, while copper fell about 1 per cent.
Some decent moves in forex and rates as well – the euro was down about 60 pips to 1.3012, the British pound was off around a big figure (1.5318) while the yen is at 97.8 from 97.4. The Aussie peso itself is marginally stronger at 0.9280. Last but not least, the 10-year Treasury yield lost about 5 bps and sits at 2.54 per cent.
In terms of the implications of last night’s political antics, the bottom line is that for markets and the economy more broadly it’s unequivocally good news. As much as people tried and still try to spin otherwise – or lay blame elsewhere (Kevin Rudd or otherwise) – the fact is Julia Gillard was very unpopular. That’s just the reality.
As I said at the time, the strategy to replace Rudd in 2010 was a monumental error, a stupid decision by strategists, power brokers, party hierarchy – whoever was involved. Truly idiotic. The consequences were an easy 10 years of governing squandered – a divided party, a minority Green-led government, which no one in the country wanted, and a heavy emphasis on spin and lies. The party suffered, the parliament suffered and the country suffered. None of it helped confidence – business or consumer – which was already being smashed by weak and lazy rent-seeking business leaders, and the campaign to slash rates and lower the Australian dollar.
Last night, I think valuable steps were taken to repair things. We need the election ASAP – and I think this will help deliver a desperately needed lift in national confidence. This will be good for the economy.
To the day ahead, the SPI suggests a 0.4 per cent gain for Aussie stocks today. Then in terms of the data, the key stuff tonight includes initial jobless claims, personal income and spending, pending home sales and a speech from the New York Fed President William Dudley who will probably continue to play down QE tapering and exit talk.
Have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.