US markets uncoupling from US reality

It looks like this quarter will show the strongest growth for seven years in the US but markets reacted poorly to the news. Why? Because strong growth means turning off the US printing presses.

On Friday in the US, there was some more unambiguously good news on the economic recovery with an unexpectedly sharp rise in job creation and confirmation that the unemployment rate was below 8 per cent for a second straight month. The rate of job creation, now running at an annualised pace of more than 2 million in the four months since June, is consistent with annual GDP growth of 3 per cent or a touch more which is well above the 2 per cent or less expansion recorded in the last 6 months. In other words, it seems likely that the GDP growth rate for the December quarter will be one of the strongest results in the US for almost seven years.

Yet this favourable economic news saw a 1.0 per cent drop in share prices, bond yields also fell, commodity prices slumped and the US dollar strengthened.

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