Daily Market Reports | Dec 10 2012
By Greg Peel
Thirteen months ago, the Italian people rallied to oust their corrupt, tax-dodging prime minister Silvio Berlusconi as the eurozone hovered at the edge of the break-up precipice. Technocrat academic Mario Monti was appointed and with majority support in parliament, including that of Berlusconi's former party, introduced now familiar austerity measures to prevent Italy becoming the next Greece.
He has succeeded, but as is the case with all austerity-impacted European economies, the people are not happy. Thus, out of a “sense of loyalty”, Berlusconi is back. Monti has lost support of Berlusconi's party in parliament and as a result will resign after the passage of a new budget, which Berlusconi's party has agreed to support, paving the way for a Berlusconi comeback. Elections will be held in the new year.
If 2012 was the year of Spain, will 2013 be the year of Italy?
Monti's intended resignation was known on Wall Street in Friday's session. However, the focus was not on Europe, but on the release of the US non-farm payrolls number for November. Economists had pencilled in 80,000 new jobs – a low figure based on an expected impact from Sandy. It was thus a surprise when the result came in at 146,000 new jobs, with the unemployment rate falling to 7.7% from 7.9%.
As is the case with most unemployment numbers, there is devil in the detail. The fall in the unemployment rate is less about more jobs and more about lower participation in job-seeking. The US needs around 120,000 new jobs to overcome natural population growth, so it's a long way back to reasonable levels of unemployment when numbers like 146,000 are considered positive. President Obama was no doubt pleased, nevertheless, with a bit more ammunition for his Cliff negotiations.
The big financial stocks led the charge last week, and again on Friday, helping the Dow up 81 points or 0.6%. Apple completed a shocker of a week with another 2.5% fall on Friday after hitting a “death cross” in which the 50-day moving average falls below the 200-day moving average. The Nasdaq closed down 0.4% on Friday, leaving the S&P to split the difference with a 0.3% gain to 1418.
One of the highlights of a seemingly growing US economy these past few months has been consumer sentiment, which on both the Conference Board monthly and Michigan Uni fortnightly measures has confounded expectations by rising to pre-recession levels. However, Cliff finally caught up with the Michigan number on Friday, which plunged to 74.5 from 82.7 in November. The drop coincides with alarming talk of Cliff and little else in US media of late.
Consumers may have just woken up to Cliff, but Wall Street is maintaining a circumspect stance. Public ramblings from the protagonists on Friday again suggested a resolution was not even close, yet Wall Street largely remains of the view neither party is stupid enough to actually “go over the cliff”. Thus we will see a compromise reached just before or after New Year, traders assume.
The US jobs data were positive for the US dollar, with the dollar index rising 0.2% to 80.42 on Friday. The Aussie is nevertheless steady at 1.0486 and gold is still recovering, up US$6.00 to US$1704.00/oz.
Base metals were slightly positive on small moves, while the oils saw little movement, with Brent at US$107.12/bbl and West Texas at US$85.93/bbl. The big mover on Friday, however, was spot iron ore. In reacting to positive rhetoric from the new regime in Beijing, iron ore jumped US$2.60 to US$121.00/t.
The SPI Overnight was up 6 points.
Speaking of Beijing, Saturday saw a monthly data dump from China. China's CPI inflation increased by 2.0% in November, up from 1.7% in October. While this is a step in the wrong direction, China's average 2012 inflation will come in well below Beijing's 4.0% target, offering no impediment to further stimulus. Retail sales rose by 14.9% year on year, which is the best result in eight months, while industrial production grew by 10.1%, the best result in nine.
Either the data are a suspicious distortion, being the first under the new regime, or accurate, which is good news for the global economy. They are at least consistent with the turnaround in China's PMI in November and general indications that China's slowdown has now bottomed out.
Today we will be looking for further evidence with the release of China's November trade balance.
Australia's economic week will kick off with housing finance and investment lending data today, followed by the monthly NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday. Thursday sees new vehicle sales.
US monthly trade data will be out on Tuesday night ahead of the December Fed policy meeting. The policy statement will be released on Wednesday along with a quarterly update of economic forecasts, and Ben Bernanke will hold one of his quarterly press conferences. With no progress on Cliff to date, Fed policy is unlikely to be much altered, but now in the frame is the impending year-end expiry of Operation Twist.
Wall Street will be looking for confirmation of what Bernanke intends to do. Will he Twist again, like he did last (southern) summer? Or will the Fed continue only one leg of the program, buying long dated bonds but not selling the short dates, which would amount to QE4? The third option – simply allowing the Twist to expire – does not appear to be on the cards.
The US rounds out its economic week with Black Friday-inclusive retail sales data on Thursday, and industrial production and the CPI on Friday. Friday will also see a flash manufacturing PMI estimate.
China (HSBC) and the eurozone will also release flash PMIs on Friday.
Rudi will appear on Sky Business today at 11.15am and Thursday both at noon and at 7.30pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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