US stocks just managed to finish in positive territory Friday night, although at one stage it was looking like a pretty solid session. We’ve got this weird dichotomy going on where real macro data is getting better, but everyone is fretting about what politicians are going to do to wreck things. Wholesale sales, for instance, were strong in September – rising by 2 per cent after a 1 per cent gain the month prior – and business expect sales momentum to continue. You can see this because inventories were up a solid 1.1 per cent as well. They were good numbers which add to existing data showing a solid acceleration in activity.
Anyway, at the high the S&P500 was up 1 per cent, getting a leg up from the data just mentioned and a few other factors, such as a consumer confidence measure that showed confidence at a five-year high. You can add to that a solid boost to financials after US regulators delayed (without nominating another date) the implementation of Basel III. It was meant to begin on January 1. And of course we had the Chinese data flow on Friday. It’s clear China’s economy isn’t doing too badly. Chinese consumer spending is strong, retail spending rising 14.5 per cent year-on-year, and industrial production accelerated (rising 9.6 per cent year-on-year in October from 9.2 per cent) as did export growth (up 11.6 per cent from 9.9 per cent). Word is, now that the leadership transition is done, economic data will accelerate further from here. Remember this is a command and control economy. When the leadership is distracted, things don’t get done.
Gains on Wall Street weren’t to last, however, and the offer came on after Obama said that addressing the fiscal cliff would involve higher taxes on wealthy Americans – more so through eliminating subsidies and the like rather than actual higher tax rates. As it was, the main indexes closed 0.2 per cent higher on the S&P (1379), 0.3 per cent higher on the Nasdaq (2904), while the Dow was flat (+0.03 per cent to 12,815). Other than that there wasn’t too much. In Europe most of the news was about Greece, and the failure of the eurozone finance ministers to agree a budget.
As far as I can tell the troika still haven’t decided when they will release funds (another meeting is to be held on November 26), although the Greek parliament themselves passed the necessary reform measures, so I'm unsure why there's so much drama. In the interim the Greek treasury is planning a 4-week bill auction on Tuesday to help tide them over. Meanwhile, data has come out showing the Greek budget deficit plunged 42 per cent in the 10 months to October to €12.3 billion.
So what does the week hold in store? That's a tough one. It starts off with the Veterans Day Holiday in the US and while markets are open action can be subdued. One of the few supporting factors at the moment – with everyone’s attention on the fiscal cliff – is the macro data, but there isn’t too much hard-hitting data that will shake the markets focus from said cliff. We get US retail sales on Thursday, that’s the earliest hard hitter and it’s expected to show a fall anyway (don’t panic, it comes after strong growth prior). In addition to that we see some inflation stats, PPI and CPI, but I don’t think we’ll see much of a change here; inflation is already uncomfortably high and that’s with ‘sluggish’ growth. It's not a good base to launch from, but it’s off the radar for now. Industrial production is also due on Friday night and we see a speech from Ben Bernanke himself. Other than that we see a few second-tier manufacturing indexes, from the Philly Fed and New York Fed.
Elsewhere abroad, it’s worth watching Japanese GDP today, alongside European and UK inflation stats. European GDP is also due out Friday night. There are a few other bits and pieces which I’ll discuss on the day.
Looking at Australia, the SPI suggests the All Ords will ease off 0.3 per cent today. For the rest of the week I’m not sure there is much domestic news and data flow that will move markets a whole lot. Data out this week includes home loans for Australia on Monday at 1130 AEDT, then we also get the confidence measures: NAB’s business survey and Westpac’s consumer survey. Confidence is atrocious at the moment in part because of the Reserve Bank's decision to cut rates, but also because many business people think policy settings might be more favourable if they whinge.
As we know, the macroeconomic data is outstanding – the economy is strong – and it’s just unfortunate that so many people have an interest in talking things down. For mine this is the hallmark of lazy and perhaps incompetent leadership. The individuals involved would be better advised to focus on business, rather than trying to influence macro policy settings. It's just one of many reasons for their underperformance, I suppose.
Anyway, I'd think there are no major upswings expected in this environment. Wednesday also brings third-quarter wages, and finally on Thursday we see car sales. Sales for this major discretionary purchase are at records, highlighting why consumers haven’t put their wallets away.
That’s the lot, have a great week…