SCOREBOARD: Wall Street mettle

Conflicting economic reports out of the US provided only a minor headwind overnight as Wall Street generally pushed higher. According to S&PCaseShiller, US house prices rose 0.6 per cent in November to be 5.5 per cent higher annually – boosting hopes that the housing recovery will improve growth prospects in 2013.

Growth is around trend at the moment and that’s with housing only making a very modest recovery. In contrast, US consumer confidence dropped 8 points in January to 58.6 – the average is in the 90s – which is the lowest since November 2011 and the third consecutive fall.

The main reason confidence fell, according to the Conference Board who compile it, is because payroll tax rose and so pay cheques are smaller. But sentiment indicators are volatile and so the market largely brushed this report off. And in any case, we saw upbeat earnings reports from Pfizer and Valero energy that helped offset the weak consumer confidence report. Indeed energy stocks were a key outperformer on the market overnight and crude itself was 1 per cent higher ($97).

So as I write (with an hour or so to go), the S&P500 is up 0.4 per cent (1506) and the Dow 72 points higher (13953). The Nasdaq is having a worse session of it, down 0.1 per cent (3150). There really isn’t to munch more to it.

In the forex space there wasn’t a lot of action – nor for rates. The Australian dollar is little changed at 1.0466, euro is about 40 pips higher (1.3488), Sterling is 55 pips higher while the yen sits at 90.7. Otherwise The US 10-year yield is still hovering around the 2 per cent mark having hit a low of 1.95 per cent in trading overnight. For commodities elsewhere, gold was up $10 to $1662), while copper was 0.7 per cent higher.

In other news, India’s central bank cut rates yesterday – by 25 basis points to 7.75 per cent. Then in the media space, US authorities investigated a number of newswire services for facilitating insider trading. The fear is the large news providers are granting large investment banks or hedge funds (whoever) access to economic and market sensitive releases, fractions of seconds before the broader market, allowing them to profit. Charges weren’t filed because a definitive link couldn’t be established apparently; the issue is whether getting the information fractions of seconds before the market allows anyone to profit. I would have thought the answer was yes.

Otherwise it was good to see Australian business confidence spike up yesterday – from -9 to 3. That’s a sizeable jump and a huge step in the right direction. It goes to show just how volatile and fickle these sentiment indicators can be though. Hopefully it will last and improve further – it should be above average but at 3 is still a tad below. Volatility makes it difficult to even ascertain the true nature of confidence at the mo’.

Looking at the day ahead, the SPI suggests the All Ords will rise 2 points – the SPI at 4856. For the macro data there isn’t much. We see Japanese retail sales this morning, while tonight we see the euro zone’s business climate indicator, the US ADP employment report and another GDP print. This is the first estimate of fourth-quarter US GDP and it’s expected to rise 1.1 per cent after a 3.1 per cent increase last quarter. D

Don’t buy into the rhetoric of slow growth though and headlines will no doubt be running wild if this number, or something like it, is realised. Numbers are volatile and as I highlighted all throughout the double-dip recession calls, a low number driven by a fall in inventories or a net export detraction doesn’t signal weak growth. Otherwise we find out what the FOMC will decide at 0615 AEDT tomorrow morning. No one is expecting any changes or an increase in printing or what have you. I expect the rhetoric to be little changed as well, with the Fed continuing to underplay the recovery by a significant margin.

That’s the lot, have a great day…

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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