The Monday Report

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By Greg Peel

Americans crammed the stores on Black Friday for the day-after-Thanksgiving Christmas shopping frenzy. Retailers reported sizeable crowds and there was hope in the air. But when the tills were counted at the end of the day it was clear shoppers were discerning and reluctant to overspend. Crowd figures saw a 2.2% increase but sales figures came in at only a 0.3% increase on the same day last year. In the abbreviated Wall Street session on Friday however, only the positive crowd figures were available.

While Americans shopped, the EU nations worked on the deal which ultimately saw an Irish bail-out figure of E85 billion agreed upon. The rate of 5.8% is well below what Ireland would have to pay under current market pricing and E35bn of the figure will be directed towards propping up Ireland's failed banks. The other E50bn will be kept on hand for public finances, but will be supplemented by the austerity contribution of the Irish people to the tune of E5,000 each via taxes and other measures. The mood on the streets of Dublin is one of extreme anger and bitterness.

The rest of the world has turned its attention back to the continent now that Ireland's bail-out is bedded down. News came through on Friday that while the EU was meeting to work out the Irish solution, the suggestion was made to Portugal that it, too, should accept a hand-out now rather than wait until its debt situation deteriorates. The bond market has been hammering Portuguese debt, meaning refinancing at such levels is a death warrant anyway. But the market has also been hammering Spanish debt, and that is the real concern. Spain's economy is much, much bigger than those of Ireland, Portugal or Greece. Unfortunately the Spanish prime minister fell into the same old foolish trap on Friday and suggested there was “absolutely no chance” Spain would need to seek an EU bail-out. Such comments usually signal the final step towards bail-out, as the Irish prime minister would attest.

The European goings on were enough to further spook Wall Street on Friday at a time when it looked like Black Friday might be a success. Further artillery fire from North Korea only added to the stress. South Koreans are angry at its government's discretion in response, outside of the potentially provocative war games being played with the US military, and as such South Korea's defence minister has resigned. That's not helpful at a time of extreme tension. Seoul sits right up near the Korean border.

By the early NYSE close of 1pm, the Dow had fallen 95 points or 0.9% while the S&P lost 0.8% to 1189.

Money continues to flow out of the euro and into the US dollar, and risk trades are also being unwound to send funds back to the reserve currency. The US dollar index rose 0.9% to 80.38 and the Aussie fell close to another two cents to US$0.9633. The US ten-year bond yield fell 4 basis points to 2.87%.

The strength of risk trade unwinding was evident in another fall in gold, by US$10.90 to US$1364.20/oz, at a time when one might expect gold to be well supported. It is simply a crowded trade.

Commodities were also trimmed on the US dollar's rise, with base metals falling around 1% (zinc 3%) and oil dropping US10c to US$83.76/bbl in light trade.

The SPI Overnight fell 21 points or 0.5%.

It's a solid week this week for US economic data beginning with the Dallas Fed manufacturing index tonight. Tuesday sees the Chicago purchasing managers' index, the Conference Board consumer confidence survey and the Case-Shiller house price index, and Wednesday construction spending, vehicle sales, and productivity. The Fed will also release its Beige Book on Wednesday and the ADP private sector unemployment data for November will be released, along with the November manufacturing PMI as part of global PMI day.

Thursday is pending home sales and same-store sales while Friday is global services PMI day along with factory orders and the November non-farm payrolls data.

All Of Australia, China, the UK, EU and US report manufacturing PMIs on Wednesday and service sector PMIs on Friday.

It's an important week for Australia, the highlight of which will be the third quarter GDP release on Wednesday. Economists trimmed their GDP forecasts last week on the back of third quarter construction and capex data, and today we see third quarter corporate profits and inventories data. Consensus at present is sitting around the 0.2% growth mark, but watch this space.

Today also brings new home sales, Tuesday building approvals, private sector credit (very important for the RBA) and the RP Data-Rismark house price index, and Wednesday the manufacturing PMI. Thursday it's retail sales and the trade balance, and Friday the services PMI.

Today and tomorrow are the last two big days of the AGM season before December all but shuts the door, although there are a couple of pesky stragglers who meet in December.

The local market already has a weak lead for today but fortunes won't be helped by yet another Qantas ((QAN)) aircraft technical problem on the weekend and the lingering transaction problems for National Bank ((NAB)) which sounds like it might prove rather costly.

Rudi's Lunch Money appearance on Sky Business this week will be on the Thursday at 12 noon.

For further global economic release dates and local company events please refer to the FNArena Calendar.

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