Global equities pushed higher overnight on the back of some decent jobs numbers out of the US. Following the recent payrolls reports which rattled many, and a spike in jobless claims over Easter, new claims in the week to April 6 slumped, falling to 346,000 from 388,000. All of a sudden labour market indicators don’t look so bad. It helped, and stocks on Wall Street closed about 0.4 per cent higher on the S&P500 (1593) and Dow (14,864) with healthcare, telecoms and consumer stocks the key outperformers.
Over in Europe there is talk that the bailout Cyprus is to receive isn’t enough and that they need to raise more funds. Initially the total bailout cost was estimated at €17 billion but this has been raised to €23 billion, of which the Cypriots would need to raise €13 billion, up from €7 billion. The additional funds are expected to be met through gold and asset sales.
Having said that though there was no response, no panic – even though it accompanied news that Portugal is seeking an extension on its bailout, a lengthening of maturities, not to mention commentary from the European Union that Spain’s reform program is losing momentum.
European stocks then closed 0.8 per cent higher in the Dax, 0.9 per cent higher in the CaC and 0.5 per cent higher on the FTSE100.
Once again commodities have done little, which is a very strange scenario indeed, especially with the US dollar falling overnight. The Australian dollar was up about 30 pips to 1.0543, the euro up about 40 pips to 1.3105 and the British pound up 60 pips to 1.5385. Normally a weaker US dollar boosts commodities, but there is a lot of resistance in this market and I don’t think that’s necessarily reflecting fundamental factors. Stocks are surging, growth is stronger than expected, etc. The outlook is better and despite plenty of talk, there is no broad-based supply surge.
Even so, crude fell another 1.3 per cent to $93.45, this time on reports that demand forecasts are being cut. Odd, for the fact that the growth outlook is stronger than last year, which normally means higher demand.
Elsewhere we saw modest moves, with copper up 0.3 per cent and gold basically flat (up $2 to $1560).
Not much action elsewhere – US Treasuries did little, with the 10-year at 1.79 per cent, the 5-year at 0.73 per cent and the 2-year at 0.23 per cent.
As for other news flow, loans in China are surging apparently, which puts to bed this idea that growth momentum is weak. However, the fear now is of another credit boom. I wouldn’t be overly concerned about that at this stage, I would just note the inconsistency here. You can’t have a weak economy and a credit boom occurring at the same time.
That’s pretty much the session – just note those Aussie jobs figures yesterday got a lot of attention and the usual knee-jerk reaction. Julia Gillard is now effectively calling for more rate cuts, arguing the budget stance gives the Reserve Bank plenty of room to cut rates further.
The labour market itself is travelling well. Looking through the volatility, we’ve seen on average about 13,000 jobs created per month for the better part of six months. Moreover the unemployment rate is low, even at 5.6 per cent. Recall economists said it would be over 6 per cent by now. In any case the spike up to 5.6 per cent will probably reverse a bit next month, but in the meantime an asymmetry exits where good news is dismissed and bad news is pounced on and embraced. That inconsistency alone negates the analysis of those economists guilty of it. If they dismissed last month's numbers as unbelievable then they must dismiss this month's. That they don’t do so says more about their bias and lack of skill than anything.
Looking at the day ahead, the SPI points to a 0.2 per cent gain for our market. Data-wise, there isn’t much for Australia but there is a run of US data tonight – key will be US retail sales, but we also get producer prices, business inventories and the University of Michigan’s consumer confidence index.
Have a great weekend…
Adam Carr is a leading market economist.
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