It turns out it was another non-descript session for Wall Street ahead of the election. The data flow was light, but not unimportant, as we had the non-manufacturing ISM survey. Recall that the services sector is about 80 per cent of the economy and the index is at 54.2 from 55.1, but still above the psychologically important 50 mark. Importantly, the jobs index rose almost 4 points to 54.8 suggesting a faster pace of job creation in October. So not bad at all, and I should mention that US retailers are expecting the best Christmas sales since 2007. The contrast between Australian and US business leaders never ceases to amaze me. With all their problems they are so much more upbeat than our guys – despite our much better metrics. It is simply incredible – there are theses galore in that fact.
Anyway, the market’s focus is elsewhere and not on the reaccelerating economy. As I write, the S&P500 is up 0.1 per cent (1415), having spent most of the session bouncing around 0. The Dow is off 5 points (13087), while the Nasdaq is 0.3 per cent higher (2990). Commodities had a little more direction and into the close we saw modest gains across the board. Gold is up about $9 to $1684, crude is 1.1 per cent higher to $85.8, although copper was down modestly – 0.1 per cent.
Over in Europe there were larger losses and the Dax fell 0.5 per cent, the CaC 1.3 per cent, while the FTSE100 was also down 0.5 per cent. Bank shares were hard it, and this seem to be related to the upcoming Greek parliamentary vote on austerity. And perhaps to news that the ECB thinks it might be too generous with respect to Spanish bills and collateral requitements. Note that the drums are sounding on Europe again – there have a been a few items, all political in nature; comments etc – which would do nothing other than to inflame the sense of crisis. That they are being made at all is incredible.
Elsewhere, US treasuries had a modest bid and the 10-year yield was down about 3bps to 1.68 per cent, the 5-year fell 1bps to 0.7 per cent, while the 2-year is at 0.27 per cent. The on the forex front, the Australian dollar is little changed at 1.0361, the euro is down almost 50 pips to 1.279, while sterling is at 1.5973 and yen at 80.25.
In other news, there was a great decision by the Federal Court yesterday, which ruled that Standard and Poor’s mislead investors when rating certain products. Lawsuits are expected in a number of other countries. This is a great thing for market efficiency and transparency, as the way these companies operate is obviously flawed. Indeed strong arguments can be mounted they increased market instability and I believe that has carried on through the European crisis. Their motives and certainly the timing of many of their decisions have been highly suspect as many European politicians have pointed out – they have been right to publically question their motives.
As for the Aussie data yesterday, the retail sales and ANZ job ads, neither really changes the picture much at all. For the month, retail rose 0.5 per cent, for the quarter it fell 0.1 per cent. Noting that, consumer spending is strong and I haven’t seen anything to change that view. Recall the pattern: economists fall out of their chair to tell you consumer spending is the "weakest in 50 years” on the basis of this survey – it’s a recession in people! Then other data out shows we’re going overseas in record numbers, buying record amounts of cars and the national accounts show strong consumer spending.
One reason is that this retail survey doesn’t cover the whole, retail sector. Indeed the ABS stopped publishing it for a while. Often the isn’t much of a correlation between this and the national accounts – we’ve seen this consistently over the past few years. It’s unlikely then than spending has fallen off a cliff as indicated by this release. Consumer spending is much more stable than that – it doesn’t go up and down wildly as suggested by yesterday data. To be honest I would be more suspicious of some problem with the data, seasonal adjustment or what have you, and I’d note that in actual spending terms (and trend terms), yesterday’s quarterly spending figures were strong. At best we could say that spending won’t be as strong as last quarter. But that doesn’t mean it is weak. As for ANZ job ads? It used to have a good relationship to jobs growth, but that is no longer the case and it doesn’t mean too much.
For today, the SPI suggests we’ll see a modest decline on the All Ords (0.2 per cent), while debt futures were up 2-3 ticks (3s at 97.44 and 10s at 96.955). Otherwise we know it’s the RBA meeting at 1430 AEDT. The economic data demands an on hold decision and I don’t even think that is a line ball judgement. However the pressure for them to cut from both the government and business – who, somewhat surprisingly, still think that it might lower the exchange rate – is considerable and a cut is a very strong probability. It's still the most likely outcome at some point, if not today. Prior to that at 1130 AEDT we get house prices from the ABS.
Looking abroad, the data tonight includes UK industrial production, German factory orders and European producer prices, but that’s about it. Nothing for the US it seems except the presidential election.
That’s about the lot, have a great day and a good punt.