It was a buoyant session last night, in the more traditional 'risk on' sense. Commodities and equities got a decent boost, driven by decent-ish economic data – or maybe it’s more the case that it was an absence of any bad data. Not too good that it would fan the fan flames of QE taper-mania, and not bad enough to get the usual woodworms talking about a ‘Spring swoon’, or a ‘double dip’ or a 'Grexit' or something.
Now, US first-quarter GDP was revised down slightly in this estimate to a trend like 2.4 per cent from 2.5 per cent last time. In itself nothing, and the result still shows this as one of the better post-recession recoveries on record.
Remember the relevant comparison of a recovery is to what the pre-recession growth rate was, not some long-term average back to 1960 or 1900. This is ridiculous, as it captures periods of dramatic structural change and rapid growth, and ignores growth theory. These are disingenuous comparisons.
That out of the way, consumer spending was in fact revised up and it’s still the case that private demand is rising strongly and government spending, largely huge falls in defence spending, was responsible for knocking off nearly a full per cent from GDP in the quarter. Not too hot, not too cold.
Same with jobless claims and pending home sales. Claims are up 10,000 but at a comparatively low 354,000 in the week to May 25, while pending home sales were up a weaker-than-expected 0.3 per cent in April. But then that’s almost 14 per cent higher annually.
With no threatening signals to the recovery and no threatening signals to QE, US equities closed 0.4 per cent higher on the S&P (1654) with the Dow up 21 points (15,324), and the Nasdaq up 0.7 per cent (3491), led higher by tech stocks, health and financials.
Results on Wall Street actually underperformed Europe, with the major indices there up between 0.5 per cent and 0.8 per cent. The key news across the was there a slight improvement in the business climate – the index rose to -0.76 from -1.04 (average about 0). Not much other than that.
Over in the commodity space, for a change we saw broad-based gains. Crude was up 0.5 per cent ($93.58), copper rose 0.6 per cent and even gold was up $21 to $1413. Otherwise there was no real action to speak of.
For forex, the Australian dollar is unchanged at 0.9676, ditto for the Japanese yen at 100.73 while the euro is about 30 pips higher to 1.3045.
Then on the rates side the US 10-year hit a high of 2.16 per cent before settling back down to 2.11 per cent (unchanged from late yesterday afternoon). The 5-year is then at 1.01 per cent and the 2-year at 0.3 per cent.
As to the capex numbers yesterday there are a few implications. Firstly, they show that business investment is likely to detract from growth in the March quarter, with investment actually falling quite sharply. This is just noise though, the data is volatile. Of much more importance, they go on to show that investment, and in particular mining investment, is still strong, rising modestly this year after a 30 per cent surge last year, while next year investment is set to rise sharply again. No slump here, and a wake-up call for many. For policy there should be implications. As to whether there will be or not will depend on how brazen the Reserve Bank board wants to be in disregarding economic settings.
If we’ve learned one thing over the last couple of quarters it's that the underlying premise guiding this phase of the easing cycle – an imminent collapse in mining investment – has proven to be just as false as previous ones (fiscal contraction, consumer capitulation etc.). I don’t think the result stands in the way of further cuts per se, although it should. Recall the Australian dollar is the target here. At the margin it makes it more difficult for the board to cut.
For today the SPI suggests gains of around 0.3 per cent for our market. Data-wise we see the Reserve Bank's estimate of credit for April, but there isn’t much outside of that.
Tonight the key releases to watch are eurozone consumer prices, German retail and, over in the US, consumer spending and income data.
Hope you have a good weekend…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.