SCOREBOARD: US retail therapy

Wall Street rises as retail sales grow in America and the stable outlook for Europe continues.

Well, there was no confusing last night’s retail numbers. The US consumer is back and sales rose 1.1 per cent as expected in February to prove it. Core sales were up 0.5 per cent after an upwardly revised 1 per cent (was 0.6 per cent). Annually, sales are 6.5 per cent higher, but the average of the last few months (0.7 per cent) annualises to a stronger 8.4 per cent pace (average is 4.6 per cent). The even better news is that ‘Grammar Watch’ didn’t detect any attempt to play it down.

Now this all happened before Wall Street opened and it was obviously a key reason why the open was good. And it was – stocks shot up. But events in Europe played their part, too. Firstly there was no real bad news on Greece and in fact Fitch upgraded Greece out of restricted default to B- (with a stable outlook). Then in Germany, investor sentiment surged as the ZEW economic sentiment index shot up to 22.3 in March from 5.4. Now this is the best result since June 2010 and shows sentiment pretty much at its average. Remarkable in the circumstances. Compare that to the confidence numbers we got out of Australia yesterday (albeit for February).

European equities had a great session then and the Dax finished 1.4 per cent higher, the CAC was up 1.7 per cent while the FTSE rose 1.1 per cent. So it is so far and in the US at the close, the S&P was also up about 1.8 per cent (1396) with financials, tech and industrials leading the charge, although all sectors are up. Now the retail numbers and data out of Europe all did their bit to boost sentiment, but it would be remiss of me not to mention the Fed – because the FOMC statement saw another 0.3 per cent put on the S&P. All the Fed statement did was to lay out the facts, simply noting what we already know. That "the economy has been expanding moderately” and that the "labour market has improved further ... unemployment rate has declined notably in recent months but remains elevated”. Previously this could have been expected to hurt risk appetite. Logically enough, if the Fed is feeling more upbeat, then it’s less likely that QE3 will be undertaken.

The difference of course is that the Fed has already leaked to the public, through their mouth pieces in the press, that nothing could be further from the truth. Recall the series of articles (WSJ, etc) discussing what measures would be taken – sterilised, new twist – whatever. The point is the signal is there that QE3 is still more likely than not, regardless of what the economy does. The way it’s being explained is that the Fed would rather be safe and print more money just in case, even if the recovery picks up steam. There are still downside risks after all. So we may as well print again. I think this explains why a more upbeat Fed aided the risk bid, whereas in the past this hasn’t been the case. In any case, at close the Dow was up almost 219 points (13178), the Nasdaq was 1.89 per cent higher (3039) and, earlier, the SPI had put on an additional 0.9 per cent (4290).

US treasuries were belted as you’d expect and the curve bear steepened as the 10-year yield put on another 10 basis points to sit at 2.13 per cent, while the 2-year yield was 2 basis points higher to 0.32 per cent. The 5-year yield in turn rose 8 basis points to 0.98 per cent. Aussie futures were off about 6 to 8 ticks on the 3s (96.375) and the 10s (95.945) respectively.

In the forex and commodity space it was all about the stronger US dollar. The dollar index rose 0.5 per cent which saw the Australian dollar off about 20 pips to 1.0530, while the euro was down almost a big figure (1.3071). Sterling conversely was 30 pips higher to 1.5696, while yen is at 82.97 from 82.08 (at 1630 AEDT). Gold then lost about $30 to be at $1672, although silver rose 0.5 per cent and copper was 1.7 per cent higher. Crude for its part was 0.3 per cent higher on WTI ($106.7) and 0.7 per cent higher on Brent ($126.2).

That’s pretty much the major stuff although there were a few other minor bits and pieces. US business inventories for instance rose 0.7 per cent in January, while shipments were 0.4 per cent higher (plus 7.2 per cent year-on-year). Still in the US, the NFIB small business optimism index rose to a 1-year high of 94.3 in February from 93.9. Again, compare that with moves in Aussie confidence.

To the day ahead, we get Westpac’s consumer confidence figures at 1030 AEDT. The figures are for March. At 1130 AEDT we see third quarter Aussie dwelling starts, then tonight, watch out for UK unemployment, eurozone CPI and industrial production.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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