Friday night’s trading session doesn’t hold too much for Australia either today or for the week more broadly. Judging from the SPI, stocks will open weaker today (down about 0.25 per cent or so), but if you look across markets, action was more mixed. So equities were weaker on Wall Street (S&P500 off 0.4 per cent, Dow off 0.3 per cent and the Nasdaq down 0.7 per cent), but mixed around 0 in Europe. Moreover, commodities generally pushed higher (gold up smalls to $1697, copper up 0.6 per cent and crude almost 1 per cent higher at $86.73).
For the US, data was good again – especially industrial production, which surged 1.1 per cent with big gains in manufacturing. Recall that the manufacturing surveys themselves weren’t as positive so this result is a bit of a surprise. Indeed the median market expectation was for an increase of only 0.3 per cent. But the fiscal cliff! There's nothing new, but it’s there and politicians are making damn sure it still weighs.
Over in Europe, it was kinda the other way round. Data wasn’t so crash hot, but most of the commentary was positive. Not entirely positive I guess, as Fitch warned that it will more likely than not take away the French triple A credit rating. But this realistically doesn’t matter – bond yields are still at record lows! Then there is Greece, which looks set to receive bailout monies starting this week.
After the recent successful bond buyback (which only fell a little short) it’s unlikely Greece will need a bigger bailout, which of course frees up the troika, especially the IMF, to lend funds. The European Economics Commissioner, Olli Rehn, noted that "We've been through quite an Odyssey since the Spring...the Cassandras have been proven wrong." Recall that some investment banks were running around saying there was a 75 per cent probability that Greece would leave the eurozone by the end of this year. Actually there was no shortage of globe-trotting economists saying it was only a question of time – when, not if. Kicking the can down the road became the clich. It was very foolish indeed.
It’s also worth noting elections in Japan given the currency wars are heating up. The LDP won in a landslide and this is a party that wants to get serious about stimulus. Read this as printing lots of yen – a lot more than they have. They’ve been doing this anyway but Japan is now serious about deflation apparently, brought about by a strong yen. The yen weakened a little on the news and is at around 83 now, from 82ish late last week. The Australian dollar is little changed at 1.055.
In terms of data and events it’s pretty quiet for Australia. The Reserve Bank’s minutes are out Tuesday 1130 AEDT, but these aren’t all that useful anymore. Why? Because the economic view is wrong. History has shown this as has recent data, but it doesn’t stop the board, commentators and economists still talking about their own reality, which is completely detached from any data or evidence: the recession Australia is going through or at least very near; the end of the mining boom; the fact that we must cut rates to lower the dollar, or offset the impact of the high dollar and lift confidence.
Fact is though there is no evidence the high Australian dollar is harming growth – none. Only statements that it is. Similarly, as we know, the Australian dollar has actually appreciated since the bank has cut rates and then there is the very obvious deleterious effect this easing cycle is having on morale. The economy must be stuffed if they’re cutting, right? Wrong.
It’s safe to assume that rates will be cut again almost regardless of what economic data does though. This is a well-established pattern. Indeed, the fact that every argument thrown up to cut rates over the last year has proven to be wrong, just doesn’t seem to register. All you see on the faces of proponents is the same vacant expression. The debate has become absurd, not even remotely intelligent and completely overwhelmed by falsehood, fairy-tale and myth. As is often the case, and this is always very concerning. Economists and commentators are becoming ever more extreme in where they think rates will go – where they think rates need to go. To the low 2’s now and I suspect it won’t be long before we see a forecast with a 1-handle. Other than the Reserve Bank there isn’t much domestically.
So looking abroad, US data won’t be view changing by the looks. There are a few second and third tier manufacturing releases – the Empire State (tonight) and Philly Fed index (Thursday night). We also see some housing stats in the NAHB Tuesday night, starts data on Wednesday. I guess the key release will be the next US GDP estimate – forecast unchanged at an above trend 2.7 per cent.
Over in Europe, its worth watching out for the IFO index on Wednesday night and maybe construction output. Otherwise there isn’t a great deal.
Have a great week…