SCOREBOARD: Risk fever
Coming into the close, US stocks look set to break a 3-day lull with the S&P500 surging 1.1 per cent (1103) thus far. An early bid tone was buttressed by a 10.1 per cent increase in October existing home sales (market looking for 2.3 per cent), which came after an 8.8 per cent increase in September. At 6.1m, existing home sales are at their highest since February 2007. Home buyer tax credits are often cited for the recent strength, yet it’s difficult to determine the full value of this policy.
To solely base the upsurge in sales on these tax credits I think would be wrong and would overlook the bigger picture. Banks must be lending and there is clearly an element of pent up demand – so these results show an economy that is normalising.
When you look at the global evidence that growth is improving and at the same time you hear Bullard (Fed voter next year) and Chicago Fed President Evans (voter now) say that rates could stay near zero till late 2010 or 2011 (as we did last night), then you really don’t need much more of an incentive to pile on the risk trades – everything is going according to script.
The US dollar generally sold off then (Australian dollar up 50 pips to 0.9245, EUR up 30 to 1.4971, GBP up 80 to 1.6614, Yen at 89.02) and commodities were bid up - gold up another $15 to 1165, oil rose 0.2 per cent to $77.6 base metals are all up – copper and nickel about 1.5 per cent with zinc up 3 per cent.
In addition to the home sales number, the gold rally and a broker upgrade to an oil mining services company helped lift equities, although telecommunications were the key outperforming sector. Elsewhere, the Dow was 112pts higher (to 10430), the Nasdaq was sitting at 2170 (or +1.1 per cent) with the SPI up 0.6 per cent to 4756.
Rates nevertheless did little, trading within a narrow range of 4/5bp. Some of that may have to do with Treasury’s $44bn 2-yr auction, which saw strong bidding again. Cover was at 3.16, below last months 3.63, but better that the historical average. Indirect bidders were awarded 44 per cent of the auction having bid for 77 per cent. Currently, the 2-yr yield is up 1bp to 0.74 per cent with the 5-yr and 10yr unchanged at 2.18 per cent and 3.37 per cent. Aussie futures down 3/2 ticks on the 3s and 10s to 95.11 and 94.60.
Looking at the other data around, most of it was good. European PMIs improved – manufacturing up a touch to 51 from 50.7, services up to 53.2 from 52.6 and the composite indicator at 53.7, which is the highest reading since November 2007. In Canada, consumers are out and about buying things – retail sales up 1.0 per cent (+0.6 per cent expected) purchases covering everything from food, to furniture and electricals.
Otherwise, not much in our time zone today. The BoJ monthly report is about it. In Europe we'll see the Final estimate of German Q3 GDP plus the IFO survey. US data includes the second estimate of Q3 GDP, expected to be revised down due to inventories, exports and consumption downgrades. We'll also get house prices, the conference board’s consumer confidence measures and the Richmond Fed manufacturing index.
Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
