n The US Federal Reserve chairman
Ben Bernanke gave testimony to Congress
on Wednesday. While Bernanke is
encouraged by recent economic data, he
notes that unemployment remains too high.
Bernanke vowed to complete the second
round of quantitative easing and was not
concerned about the potential for higher
inflation despite rising global commodity
n European shares eased on
Wednesday as investors chose to take
profits across equity and commodity
markets in response to Tuesday’s decision
by China to lift interest rates. In
corporate news, London Stock Exchange is
to buy Canada’s TMX. The FTSEurofirst
index fell by 0.4pct, with the UK FTSE
lower by 0.6pct while the German Dax fell
less than 0.1pct. In London trade,
mining shares were lower with Xstrata
down by 1.7pct, Rio Tinto easing 1.1pct
and BHP Billiton was lower by 2.1pct.
n US investors chose to take
profits on Wednesday after seven days of
gains. Shares of financial market
exchanges were amongst the best
performers on news that Deutsche Boerse
is in advanced talks to merge with NYSE
Euronext. With an hour of trade to go,
the Dow Jones index was lower by 35pts or
0.3pct with the S&P 500 down 0.7pct and
the Nasdaq was lower by 14pts or 0.5pct.
n US treasuries rose on Wednesday
(yields lower). Investors chose to shift
funds from equities to bonds after Ben
Bernanke indicated little concern about
inflation and a determination to continue
with quantitative easing. There was also
good demand for an auction of 10yr notes.
US 2yr yields fell by 7pts to 0.79pct and
US 10yr yields fell by 11pts to 3.63pct.
n Major currencies were mixed
against the greenback during European and
US trade. The Euro rose from near US
$1.3610 to US$1.3740 and was holding near
US$1.3720 in late US trade. The Aussie
dollar traded between US100.85c and
US101.45c, and was near US$100.95c in
late US trade. And the Japanese yen
lifted from 82.65 yen per US dollar to
around JPY82.20, and was near JPY82.35 in
late US trade.
n US and European crude oil prices
diverged on Wednesday. US oil prices
softened in response to high stock
levels. The Energy Information
Administration reported that gasoline
stocks rose in the latest week to the
highest level in almost 21 years. But
Brent crude rose on concern about
simmering unrest in Egypt. The Nymex
crude oil contract fell by US23c to US
$86.71 a barrel. But London Brent crude
rose by US$1.75 to US$101.67 a barrel.
n Base metal prices eased on the
London Metal Exchange on Wednesday as
investors chose to take profits. Metals
fell up to 2.7pct with nickel doing best,
falling only slightly. But the Comex
gold futures price rose US$1.40 an ounce
to US$1,365.50 on simmering inflation
n Ahead: In Australia, labour
market figures for January are released.
Telstra and Rio Tinto are among those
releasing half-year results. In the US,
weekly jobless claims data and wholesale
trade figures are released.
PBOC lifts interest rates
The People’s Bank of China has lifted
interest rates for the second time in just
over a month. The 1-year deposit rate will
be lifted 25 basis points to 3.00pct while
the 1-year lending rate is up 25bps to
US chain store sales rose by 2.7pct last
week compared with a year earlier according
to Redbook Research.
European shares were mixed on Tuesday in
response to China’s decision to lift
interest rates. The FTSEurofirst index fell
by 0.1pct, but the UK FTSE rose 0.7pct with
the German Dax up 0.5pct. In London trade,
mining shares were higher with Xstrata up by
1.7pct with Rio Tinto up 1.9pct and BHP
Billiton up 0.8pct.
US sharemarkets rose again on Tuesday with
investors shrugging off China’s decision to
lift interest rates. Shares in McDonalds
rose by 2.9pct after the fast-food giant
announced that January same store sales beat
market expectations. Of interest, a small
start up company, Gateway Industries, was up
20,000pct today. With an hour of trade to
go, the Dow Jones index was up 48pts or
0.4pct with the S&P 500 up 0.2pct and the
Nasdaq was higher by 6pts or 0.2pct.
US treasuries fell again on Tuesday (yields
higher). Investors fretted about global
inflationary pressures following China’s
decision to raise rates for the third time
since October. US 2yr yields rose by 8pts to
0.84pct and US 10yr yields lifted by 8pts to
Major currencies again largely tracked
sideways against the greenback during
European and US trade on Tuesday. The Euro
held between US$1.3590 and US$1.3690 and was
near US$1.3625 in late US trade. The Aussie
dollar traded between US101.10c and
US101.90c, and was near US$101.45c in late
US trade. And the Japanese yen traded from
81.80 yen per US dollar to around JPY82.30,
and was near JPY82.35 in late US trade.
US crude oil prices fell again on Tuesday.
While strike activity has occurred in the
Suez Canal region, a senior canal officer
told Reuters that they wouldn’t affect canal
operations. The Nymex crude oil contract
fell by US54c (0.6pct) to US$86.94 a barrel.
But London Brent crude rose by US78c to US
$100.03 a barrel.
Base metal prices were again little changed
on the London Metal Exchange on Monday. All
metals rose between 0.1-0.5pct except lead
which lost 1.1pct. And the gold price rose
to three-week highs on Tuesday on global
inflation concerns with the Comex gold
futures price up US$15.90 an ounce to US
Ahead: In Australia, consumer sentiment
data is released. Commonwealth Bank, Boral
and Stockland are amongst those releasing
half-year results. In the US, Federal
Reserve chairman Ben Bernanke delivers
Check out also this link to information about Andre Di Cioccio Lawyer Jail
It was pretty boring in terms of the data and news flow last night.
Equities did well around ze globe, on a run of positive earnings and the
strengthening view that global growth is strong. Bonds in contrast did
little – ditto FX – while commodities for their part were mixed.
The domestic news flow has been more interesting of late and we get another
decent release today with NAB’s January business survey (1130). It was only
a week ago that we got the December figures showing a drop in confidence
but a pick up in actual conditions. January’s numbers are likely to show
another drop in confidence given the floods, but as history has shown,
confidence figures tend to bounce back when things settle down, so we
shouldn’t be too concerned about any deterioration today and instead we
need to focus on the underlying momentum. I can appreciate that this is
hard to do though. The papers are relentless in telling us how bad things
are and so it is completely normal for confidence figures to be distorted
by extreme news events.
Underlying momentum nevertheless remains robust – and we saw this in
yesterdays retail results. Consumer spending ex food was strong for the 2nd
month running and has been pretty solid on average for the bulk of this
year. Yet what do we read in the press today? It’s about how the sector is
struggling – what rot. We’ve been hearing this since day one of the
recovery by the way, even when all the data was unanimous in showing
strength. Look, I’m sure some retailers aren’t finding things as easy as
they once were, but that doesn’t mean things are truly tough. Some of the
larger players who may be finding things harder may instead need to look at
their business model – spending patterns, the shop font – all of this is
changing and it’s not as easy as it once was. That’s what competition is
all about. That doesn’t mean, as the data proved yesterday, that consumers
have put their wallets away.
Things are not booming, no one is suggesting this, but the data is
unequivocal in showing decent underlying momentum. If consumers had really
put their wallets away, would household goods spending be up 1.5% in
December, after 2 months of strong growth? Would clothing and soft goods
retailing be up 2.7% in the month? Would spending in cafes and restaurants
have increased by 0.8% in December? If people weren’t spending, and noting
that I’m not very good at math (or spelling), I just don’t think they would
be – the numbers don’t add up. And remember that most of these goods are
subject to deflation, prices are falling, so if values are rising that can
only mean volumes growth is even stronger. The debate has become
ridiculous in Australia and we have several wags talking as if we were in a
downturn – really ludicrous stuff. I shouldn’t complain too much though,
because just like most the ‘debates’ we had last year, it does provide a
good opportunity to profit.
As to last night’s price action though, and with about half an hour to go,
US equities are up 0.5% on the S&P500 (1317) with financials, industrials
and tech stocks leading the charge. Energy stocks weren’t too far behind,
despite a 1.7% fall in crude ($87.45 on WTI or -0.6% to $99.26 for Brent).
The Dow for its part was up 63pts (12156), the Nasdaq was 0.5% higher
(2782) while the SPI was also 0.5% higher (4870). Finally stocks in Europe
were all up about 0.9%-1% on the major indices.
As mentioned, debt markets were subdued and US Treasuries are little
changed from yesterday afternoon. The 2yr yield is up 1bp to 0.76%, the 5yr
yield is unchanged at 2.28% while the 10yr is also unchanged at 3.64%.
Aussie futures did nothing on a tight range – 3s at 94.64, and 10s at
No real changes on FX either, AUD is at 1.0142 (down 6pips on a 50pip
range), EUR is at 1.3593 (down 16pips on a big figure range), GBP is 1.6124
(big figure + range) while Yen is virtually unchanged at 82.28. Gold is up
smalls ($1350) while copper is down 0.4% in NY.
Dataflow was reasonably minor. German factory orders fell 3.4% in December
after a 5% increase and are about 20% higher annually. Canadian building
permits rose 2.4% in December after a 10.5% drop in the month prior.
Finally, US consumer credit was a lot stronger than expected, rising $6.1bn
compared to expectations of $2.4bn. ON the News Front, the head of research
and the San Fran Fed said that the US economy had reached escape velocity.
Apparently the Germans are trying to end wage indexation, raise retirement
ages and lock in debt limits into EU constitutions – in a competitiveness
pact. All sensible stuff, although some of the troubled states have voiced
opposition to it.
Very little out tonight, German industrial production and a bunch of Fed
That’s it, have a great day.
n US non-farm payrolls
(employment) rose by just 36,000 in
January. While the report was well short
of expectations of job gains near
148,000, weakness was attributed to harsh
snow storms in the month. But the
jobless rate plunged from 9.4pct to
9.0pct – the lowest level since April
2009. Hourly earnings jumped by 0.4pct.
n European shares rose slightly on
Friday as investors debated a mixed US
payrolls report. Construction and
utility stocks were most in demand. The
FTSEurofirst index rose by 0.1pct, with
the UK FTSE up 0.2pct and German Dax
higher by 0.3pct.
n US sharemarkets rose on Friday
as investors shrugged off tepid jobs
growth, preferring to focus on positive
forward indicators released earlier in
the week. At the close of trade, the Dow
Jones index was up 29.9pts or 0.3pct with
the S&P 500 up 0.3pct and the Nasdaq was
higher by 15pts or 0.6pct. Over the week
the Dow Jones rose by 2.3pct with the S&P
up 2.7pct and Nasdaq lifted by 3.1pct.
n US treasuries fell on Friday
(yields higher) as investors fretted that
inflation could prove
stronger-than-expected over 2011. US 2yr
yields rose by 3pts to 0.75pct and US
10yr yields lifted by 9pts to 3.64pct.
Over the week US 2yr yields rose by 20pts
– the most since June 7 2009. And US 10yr
yields rose by 31pts.
n Major currencies eased against
the US dollar during US trade on Friday.
The Euro fell from highs near US$1.3645
to US$1.3545 before ending US trade near
US$1.3580. The Euro has softened to US
$1.3550 this morning. The Aussie dollar
fell from highs around US101.95c to
US101.10c, but lifted to near US101.40c
in late US trade. The Aussie has softened
to near US101.10c this morning. And the
Japanese yen fell from 81.50 yen per US
dollar to around JPY82.45, and closed US
trade near JPY82.20.
n US crude oil prices fell by
almost 2pct on Friday in response to
unfounded speculation that Egypt’s
President Mubarak could step down over
the week-end. Investors also chose to
take profits as the US dollar rose. The
Nymex crude oil contract fell by US$1.51
(1.7pct) to US$89.04 a barrel. And London
Brent crude fell by US$1.93 to US$99.83 a
barrel. Over the week Nymex crude fell by
US30c while Brent rose by US41c.
n Base metal prices rose on the
London Metal Exchange on Friday. Metals
rose 0.4-1.5pct with nickel doing best.
Over the week metals generally rose
between 5.3-6.7pct but aluminium lagged
with a 2.5pct gain. But the gold price
eased on Friday in line with oil in
response to a stronger greenback. The
Comex gold futures price fell by US$4.00
an ounce to US$1,349.00. Gold rose by US
$8.30 an ounce over the week.
n Ahead: In Australia, job
advertisements data is released together
with retail trade. In the US, consumer
credit data is released.
The US ADP private sector employment report supported the view that the US economy was picking up|
|steam. The private sector added 187,000 jobs in January following on from the downwardly revised|
|247,000 jobs added in December. The January result was well ahead of expectations. The non-farm|
|payrolls report on Friday is expected to show a rise of 145,000 jobs for January. |
|European shares edged higher on Wednesday. Mining shares posted solid gains in response to |
|higher metal prices. The STOXX Europe 600 Resources index gained 2.1pct as copper prices |
|remained near record highs. In London, banks found good support on improved investor sentiment. |
|Standard Chartered rose 1.7pct. The FTSEurofirst index rose by 0.2pct with the UK FTSE up 1.6pct|
|and the German Dax was higher by 1.5pct. |
|US sharemarkets were mostly unchanged on Wednesday with stocks managing to hold on to the |
|previous sessions sharp gains. The strong employment data was tempered by the fresh clashes |
|between authorities and citizens in Egypt. With an hour of trade, the Dow Jones index was up by |
|14pts or 0.1pct with the S&P 500 down 0.1pct and the Nasdaq was higher by 4pts or 0.2pct. |
|US treasuries fell again on Wednesday (yields higher). Better-than-expected economic data |
|supported a switch away from safe-haven assets. The US treasury department said it will auction |
|$72 billion in notes next week – in line with expectations. US 2yr yields rose by 5pts to |
|0.66pct and US 10yr yields rose by 4pts to 3.49pct. |
|The US dollar strengthened against major currencies In European and US trade on Wednesday. The |
|Euro fell from highs near US$1.3855 to US$1.3775, and was near US$1.3795 in late US trade. The |
|Aussie dollar fell from highs around US101.25c to US100.55c, and was around US100.80c in late US |
|trade. And the Japanese yen eased from 81.40 yen per US dollar to around JPY81.80, and was near |
|JPY81.60 in late US trade. |
|US crude oil prices pared early gains following the rebound in the US dollar. The release of the|
|weekly inventory data also pressured oil prices. US crude stockpiles rose 2.6 million barrels |
|last week as refiners rebuilt stockpiles following the sharp drawdown late last year. The Nymex |
|crude oil contract rose by US9 cents (0.1pct) to US$90.86 a barrel. London Brent crude fell by |
|US21c to US$101.53 a barrel. |
|Base metal prices mostly held on to the previous session’s gains on the London Metal Exchange. |
|However the recovery in the US dollar did pressure commodities in late trade. Aluminium fell |
|1.2pct while Lead gained 0.5pct. And the gold price eased on Wednesday as the US dollar |
|strengthened. The Comex gold futures price lost US$8.20 an ounce to US$1,332.10. |
|Ahead: In Australia, data on building approvals and trade data is released. In the US, the ISM |
|non-manufacturing index and factory orders are released.
The data out of the US continues to impress. Personal income and spending
numbers out last night show the US consumer is back. Incomes rose 0.4% in
December, while spending rose 0.7% – the savings rate, meanwhile is at a
comparatively elevated 5.3%. In the manufacturing space, data is no less
promising, with manufacturing surveys for Chicago, Dallas and Milwaukie all
showing robust activity.
Now this is all great news and helped underpin a bid in the equity space.
Admittedly this bid is fading into the close, but at the high the S&P500
was up 0.8% (currently 0.4% at 1281). BY sector, energy stocks were the key
outperformers, boosted by another 3% gain on WTI ($92.17, Brent $100) and
strong earnings from ExxonMobil. Basic materials and industrials also
outperformed, with consumer goods, telecommunications and consumer services
weighing heavy. The Dow otherwise was up 31pts (11853), the Nasdaq rose
0.3% (2693) while the SPI was flat (4727).
In FX land, both EUR and Sterling got a decent boost from some higher
European inflation data, especially Sterling which was up 148pips to
1.6007. The market is increasingly taking the view that rates on hold, is
a luxury neither the ECB nor BoE can afford. EUR rose 85pips to 1.3680
after euro zone inflation rose to 2.4%y/y in January from 2.3% (remember
the ECB targets 2% or below). Otherwise AUD was up 40pips to 0.9961, while
JPY was unchanged at 82.05.
In contrast, there was little action in debt markets. US treasury yields
are currently up between 2-4bp with the 2,5 and 10yr trading within a
4-11bp range to be at 0.57%, 1.95% and 3.37% respectively. Aussie futures
are down 1-3 ticks on a 4 tick range with 3s at 94.93 and 10s at 94.47.
Bits and pieces otherwise. Canadian GDP rose by 0.4% in November to be 3%
higher annually. In Germany, retail sales fell by 0.3% in December after a
1.9% fall in November. Note that there are rumours flying around that
Greece and relevant parties are discussing some kind of ‘Brady Plan’ like
deal. Basic gist is that bond holders would take a haircut and the
maturity of Greek loans would extend to 30yrs. The Greek government
confirmed they are discussing plans to extend the maturity of loans, but
denied there would be a restructuring or any haircut applied to bond
holders. Note that over the last week, the ECB bought no bonds, the first
time since October, and a great sign that debt concerns are easing. Also of
interest, US corporate bond sales apparently are at a January record, not
surprising with such a low cost of funding.
So today we can look forward to the RBA’s rate announcement (1430) although
no one is expecting any changes from the Bank today. To be honest, I have
no sense of what the RBA Board will make of recent events, but I would be
genuinely stunned if they are as dovish as the market. I would hope that
they can see sense, see past all the PR rubbish and set policy with an eye
to the medium term national interest. As I highlighted in my piece
yesterday, global growth is accelerating we know this, look at the recent
data flow, especially out of the US.
We know that global inflation is rising, already in Europe and the UK it is
above the band – it is rising sharply in the emerging world. In the
domestic space growth is robust – ok credit growth is sluggish and there
are questions over retailing. But this is the whole point of the exercise
– credit growth should be subdued, likewise consumer spending. With
interest rates barely above average, barely even above neutral, I think it
is ridiculous to sincerely expect the RBA to just sit around and a wait for
a consumer spending rebound (not that I think there is a lot of reliable
evidence that it soft) or a pick up in credit growth – as if these were
somehow desirable outcomes. Similarly, we can’t just expect them to sit
around in fear that Europe will disintegrate or China implode, while global
growth, meanwhile, is so strong.
Whatever the case in the retail space it is clear that high interest rates
are not the problem. Ditto credit. Interest rates are not that high, a
fact plain to see. So with the fantasy of a global double dip over, we are
left with the reality of strong global growth, rising global inflation and
a commodity boom; all thrown in with the most stimulatory monetary policy
humanity has ever seen – which by the by doesn’t look like its going to
change any time soon. It’s a lay down misere, they should hike.
Just prior to that NAB release their business survey for December, the ABS
issue Q4 house prices and then tonight we get US construction activity and
the ISM index.
Have a great day..
limited. Stocks in Europe were mixed but not significantly different from
0. So for instance the FTSE was off 0.3%, the Dax rose 0.03% and the STXE
600 rose 0.1%. The SPI closed 0.01% higher (4748).There wasn’t much more
action in debt markets either. Bunds and gilts fell marginally (yields up)
Aussie 3s and 10s were unchanged at 94.87 and 94.45, while in the FX space,
we saw AUD up 67pips to 0.9944, EUR down 45pips to 1.3294, GBP up 27pips to
1.5881 and JPY down to 82.71 from 82.89.
That done, the main focus for the market was this debate over the Euro
zone’s bailout fund. The latest discussion is whether the EFSF should be
allowed to buy the debt of distressed economies and get a substantial boost
to its lending capacity. At the moment, the fund can raise €440bn, but only
lend out €250bn, which is obviously a problem if Spain should require help.
The ECB backs the plan, the French bank it, the European Commission backs
it as well. Only Germany is holding back, but recall here comments from the
German Finance Minister that a plan would be reached by March. This is from
a man not known to mince his words, so I think we can take that at face
value. A solution will be reached. By the by it actually concerns me when
people mistake robust debate and disagreement as political ineptitude.
Sign of the times I guess. The reality though, is that robust debate and
well managed conflict and disagreement, over time, yields superior results.
I think its wrong then to look at the goings on in Europe as a reason to
believe in its imminent demise. I think in contrast the political bonds
that bind will only strengthen. Anyways, while we are on Europe, an ECB
member, Orphanides, suggests that markets have overreacted to the ECB’s
recent policy statement suggesting that the ECB sees no need to change
policy and that they’re not hawkish.
Still in central bank land, one Fed member (Plosser, a voter this year),
one of the few who seems to know anything about economics, suggests that
monetary policy will be unable to speed up adjustments in the labour market
and that attempts to use monetary policy for this purpose may create
further instability. Here, here. He also argued that the Fed’s powers
should be curbed to prevent abuse (further abuse I would argue). Here,
here. On the outlook, he seemed to suggest that the Fed could end Qe2 early
and even hike rates this year if conditions warranted it, stating “I do
know that there is a danger that we wait to long, and the consequences of
that might be disruptive and dangerous”. I would suggest that it is 100%
guaranteed that the Fed will wait too long and that absolutely the
consequences will be disruptive and dangerous. This is from a central bank
that brought us GFC I and we expect them to steer a steady course through
the fall out? You’re kidding.
Other than that, China’s President suggested that the global monetary
system wasn’t functioning very well and that the US should keep USD
liquidity at a reasonable and stable level (here, here). In return a group
of US senators are calling for action against China for their FX policy.
So looking at the day ahead, there is little for Australia or NZ (REINZ
house prices at 0800). Japan releases their final estimates of November
industrial production and machine tool orders. The UK release December CPI
and remember this has been above target now for about a year, all the while
some members of the monetary committee are actually dim-witted enough to
argue for more QE. Elsewhere we see the German Zew survey, the US Empire
State manufacturing survey and the BoC meets on rates (no change expected).
Have a good one…
n The US consumer price index rose
0.5pct in December, ahead of forecasts
centred on a rise of 0.4pct. The core
rate (excludes food and energy) rose
0.1pct. Retail sales rose 0.6pct in
December, below forecasts tipping a rise
of 0.8pct. Industrial production rose
0.8pct in December, ahead of forecasts
for a 0.5pct gain. And consumer sentiment
eased from 74.5 to 72.7.
n The People’s Bank of China has
raised the bank reserve requirement ratio
for the seventh time since early 2010.
The lift of 50 basis points takes effect
on 20 Jan.
n European shares eased slightly
on Friday as investors digested the
latest news on Chinese monetary policy.
Mining shares fell after the news from
China. In Lond trade shares in Rio Tinto
lost 1.5pct while BHP Billiton lost
1.8pct. The FTSEurofirst index fell by
0.1pct, with the UK FTSE lower by 0.4pct
while the German Dax edged 0.01pct
higher. But over the week the
FTSEurofirst index rose by 1pct.
n US sharemarkets rose on Friday
with investors heartened by solid
earnings from JP Morgan and Intel. The
Dow Jones index rose by 55.5pts or 0.5pct
to 30-month highs with the S&P 500 up
0.7pct to 28-month highs and the Nasdaq
rose by 20pts or 0.7pct. Over the week
the Dow rose by 1.0pct while the S&P 500
was up 1.7pct and the Nasdaq finished
higher by 1.9pct.
n US longer-term treasuries fell
on Friday (yields higher) as investors
squared positions ahead of a holiday
weekend. US 2yr yields were steady near
0.58pct and US 10yr yields rose 3pts to
3.33pct. Over the week US 2yr yields fell
2pts and US 10yr yields were steady.
n The US dollar firmed against the
Japanese yen and Aussie dollar in US
trade on Friday but the Euro tracked
sideways. The Euro held between US$1.3310
and US$1.3455, ending US trade US$1.3375.
The Aussie dollar eased from highs near
US99.80c to US98.55c, before ending US
trade near US98.95c. And the Japanese yen
eased from near 82.40 yen per US dollar
to JPY83.05, ending US trade near its
n US crude oil prices rose on
Friday to 27-month highs with optimism on
US earnings weighed against Chinese
policy tightening. The Nymex crude oil
contract rose by US14c to US$91.54 a
barrel. The expiring Brent crude contract
rose by US62c to US$98.58 a barrel. Nymex
oil rose by 4.0pct over the week.
n Base metal prices were mixed on
the London Metal Exchange on Friday.
Aluminium fell 0.5pct and zinc lost
0.3pct but other metals rose 0.4-2.0pct.
Over the week base metal prices were
generally higher. Nickel rose 6.9pct and
other metals rose 0.4-2.4pct, except
aluminium, down 2.0pct. And the gold
price fell with the Comex gold futures
price lower by US$26.50 an ounce to US
$1,360.50. Gold fell by 0.6pct over the
n Ahead: In Australia, data on
lending finance, car sales and the
monthly inflation gauge are released. In
the US, markets are closed for Martin
Luther King Jnr day.
The Australian share market is trading stronger at midday, lead by the miners as stronger base and precious metal prices lifted resource stocks. Gold miners also rallied after gold prices rose in overnight offshore trade, hitting its highest point since mid-November. Copper has also risen to a three-week high.
The S&P/ASX200 index is up 23 points to 4,712, while on the futures market the SPI is up 21 points.
Economics news: The Performance of Construction Index released by Australia Industry Group and the Housing Industry Association shows Australia’s construction sector has contracted for a sixth month in November, with apartment builders reporting the worst conditions in 16 months. The overall construction index fell by 1.8 points in November. Apartment building and house building both took a dive. The survey found firms complaining about difficult market conditions, intense competition and decreasing work from the government’s school building project. Residential builders cited the impact of higher interest rates and weak demand from first home buyers.
Telstra Corporation Ltd’s (ASX:TLS) wholesale division is set to compete with NBN Co and various other wholesalers in the voice and internet services resale market. Telstra Wholesale’s group managing director Paul Geason says the company can keep its wholesale customers after transferring them to fibre if it provides services that NBN can’t such as billing, data hosting, content distribution and television. Shares in Telstra are down 0.36 per cent at $2.79.
Newcrest Mining Ltd (ASX:NCM) says it expects to boost gold output to 3.75 million ounces in the 2014 fiscal year from 2.74 million ounces in 2010. Earlier this year, Newcrest acquired rival Lihir Gold, which mainly operated from Lihir Island in Papua New Guinea. Shares in Newcrest are up 1.22 per cent at $41.59.
Turning to market indices, and the best performing sector is Materials with the index up 127 points to 13,922. Shares in Synergy Metals have advanced 16.67 per cent to $0.007. Shares in Strategic Minerals and Copper Range are also higher. The worst performing sector at midday is Healthcare with the index down 58 points to 8,773. Shares in Cordlife are down 16.9 per cent to $0.295. Shares in Stirling Products and LBT Innovations have also dropped at midday.
To New Zealand: The NZSX50 is down 4 points. Taking a look at the top 4 stocks by turnover, Telecom Corporation of New Zealand is at the top of the list with stock down 1.38 per cent at $2.15; followed by Fletcher Building Group, Sky Network and Contact Energy.
To gold and the dollar: Gold is trading at $US1,421 an ounce and the Aussie dollar is buying 98.84 US cents.
The RBA’s meeting this Tuesday is unlikely to produce another rate hike, we got that when the commercial banks hiked following the November 2 meeting. In terms of market pricing, no economists expect the RBA to hike and futures have no chance of hike priced in and if anything, a very modest chance of a cut – don’t get excited about that though.
There is a lot of talk about the prospect of a more dovish RBA statement following the decision and while that’s always a possibility I’m not sure that the RBA or indeed the RBA board will be feeling that dovish.
You have to acknowledge, and I do, that it has been a good week for the bears (on the economy at least). At face value the retail figures and the soft GDP figures suggest the economy is slowing sharply and certainly some commentators believe just this. Nevertheless, and as I briefly discussed on the day, the headline GDP figure gives a misleading signal as the weakness was driven by base effects, statistical noise and producers underestimating growth (running down inventories).
Consequently I think it’s wrong to conclude from these figures that the economy is slowing sharply. Domestic demand growth (what consumers, business and government actually spend) is still robust, rising 0.6%q/q after 4 quarters of growth averaging 1% and annually, growth is an above trend 4.4%.
I mean it doesn’t make a lot of sense to conclude the Australian economy is slowing. Interest rates are only at average levels. They are not restrictive and I don’t think it’s accurate to suggest that the nation is straining under the weight of restrictive monetary policy. Moreover, jobs growth is very strong and the unemployment rate is very low. Note that we get another update on the labour market this Thursday (1130) and the median market expectation is that 20K (me at 15k) jobs were created. The unemployment rate is forecast to dip to 5.3%.
This, by the by, is one of the reasons I don’t think we can be confident of the signal the monthly retail numbers are giving – you don’t usually have a sluggish retailing sector when jobs growth is so strong. Don’t forget we have been here before, numerous times. Mid-year for instance, things were looking dire in the retail space, along comes an ABS revision and all of a sudden things weren’t so dire.
The opposite occurred this time round. Monthly retail sales were looking solid, along comes one weak month and some revisions, all of a sudden things look soft. My point is, you’re not going to get an accurate picture of the retailing environment when they are subject to such swings (something that it evident in the monthly retail components as well, swings have been huge). Nor are you going to get an accurate picture of the retailing environment from the retailing association. So think big picture, look at the whole canvass and you’ll be able to make a more precise assessment of where the Australian economy sits – and of course profit from any mispricing.
For instance, IBs look expensive for mine. Not even one rate hike is priced into the curve at this point (46% to June) and while I reckon future rate hikes will occur less frequently, I don’t quite think they’ll be that infrequent. I still think there will be 2 rate hikes in the first half, at this stage one each in Q1 and Q2, based largely on global growth prospects – which is why I think 10yrs look expensive as well.
Risk appetite is coming back, the global economy is much, much stronger in the 2H10 than had been projected and there is no sign of this material slowing that has been continually touted. 2011 will no doubt be more of the same – except much stronger. There is an extraordinary amount of policy stimulus globally and that doesn’t look like its going to change any time soon. Indeed the Bernank is apparently about to argue on 60 minutes (11am today Oz time) that he won’t rule out further quantitative easing. US data outside of that is reasonably light and includes initial jobless claims (Thursday), trade data and the Michigan consumer confidence survey (both Friday). The US government then plans to sell $66bn in coupons this week and monetise (this week alone) up to 1/3 of it by buying $15-$22bn worth of treasuries off itself and printing the money to do it.
In Europe , watch out for German factory orders (Tuesday), and then German trade data and industrial production on Wednesday. The UK has industrial production on Tuesday and the BoE meeting Thursday (no changes expected). Otherwise watch out for Chinese trade data on Friday and central bank meeting in Canada , NZ (Thursday morning at 7am) and South Korea (no changes expected).
Don’t forget ICAP’s charity day this Wednesday – dig deep, as all profits earned go toward helping those in need and as we know, good things happen to charitable people. So let’s be charitable!
Hope you have a great week…