The Monday Report

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By Greg Peel

The feedback from the shutdown fiasco is that of a Republican party plummeting in popular opinion, including amongst its own voters, as the stalemate continued. That is why the Tea Party ultimately backed down, and why Wall Street assumes that the new January budget deadline and February debt ceiling deadline will not result in a repeat performance.

Wall Street also now assumes the Fed will not begin tapering until at least March, and possibly longer. It is as yet unclear just what economic damage the shutdown has wrought. Wall Street might not be expecting a reprise but Main Street is less likely to trust such an assumption, and as such confidence and spending will likely be curtailed. Christmas may not be all that cheerful.

Traders are nevertheless enjoying the opportunity to focus on actual corporate earnings, and at this early stage the net result is positive for the September quarter. On Friday night it was the turn of Google, Morgan Stanley and General Electric to star, with solid results sending MS shares up 2.6%, GE up 3.5% and Google up a whopping 14%. That’s a very big move for a very big company, ensuring a 1.6% gain in the Nasdaq despite only a 28 point or 0.2% gain for the Dow. The S&P split the difference with a 0.7% increase into further blue sky at 1744.

Wall Street was also pleased with Friday’s GDP result from China which, while smack on expectation, indicated a lift in the pace of growth to 7.8% year on year from the June quarter’s 7.5%. In the accompanying monthly data dump, industrial production slipped back to 10.2% year on year growth from June’s 10.4% but economists had forecast 10.1%. Retail sales grew 13.3%, down from 13.5% and below 13.4% forecasts. Fixed asset investment also came in a tad off the mark, rising 20.2% to September compared to the same period last year, against hopes of 20.3%.

The results are okay, but not suggestive of further acceleration. Some economists are assuming China’s GDP will slow again in 2014.

As much as Australia can feel happy with at least a stronger Chinese GDP, the impact on the currency is starting to bite. When all and sundry assumed the Fed was set to begin tapering in September, the Aussie traded down to 89 and all was going to plan. On Friday night the exchange rate hit 97 before settling back on Saturday morning to US$0.9672. For the RBA, it’s a nightmare. Recent implications from the central bank that another rate cut is not prudent at this stage have helped to push the Aussie higher. Both the Fed and the RBA have their own Catch-22s to deal with.

The US result season will shift into top gear this week and while September quarter earnings are the focus, the market will be on the lookout for shutdown-related fourth quarter guidance reductions. Meanwhile, the US government is gearing up to release all the economic data not able to be released during the shutdown. On Tuesday we’ll see the missing September non-farm payrolls numbers, but beyond that it remains unclear as to exactly when a raft of other data points will be released.

Friday’s further gains in the Aussie, up 0.5%, came despite a flat close for the US dollar index at 79.62. Gold slipped back US$3.60 to US$1320.10/oz after Thursday night’s big jump, while the US ten-year bond yield was steady at 2.59%.

Base metals still really don’t know what to think of it all, and with the Chinese GDP coming in on target the LME appears to be seeking fresh direction. Metals were flat on Friday bar nickel, which is having a bit of a run and was up 1.6%. The oil market was happier with the Chinese result, with Brent rising US$1.13 to US$110.08/bbl. But West Texas managed only a US19c gain to US$100.86/bbl.

Spot iron ore was unchanged at US$134.40/t.

The SPI Overnight closed up 22 points or 0.4%.

The US will be back to business on the scheduled economic data front this week, with delayed data also featuring as noted.

Tonight will see the Chicago Fed national activity index and existing home sales and Tuesday will bring the Richmond Fed manufacturing index and the delayed September jobs numbers. Wednesday it’s the FHFA house price index, Thursday new home sales and Friday durable goods and the Michigan Uni fortnightly consumer sentiment measure.

At some stage we expect delayed releases including business inventories, construction spending, housing starts, industrial production, retail sales, wholesale inventories and the trade balance.

Thursday will see a flash estimate of the US manufacturing PMI for October. HSBC will provide the same for China and equivalent eurozone numbers will also be released.

Japan provides its trade balance today and critical inflation data on Friday, while China will see property prices tomorrow and industrial profits on the weekend, as well as the PMI. The UK will show off its first estimate of September quarter GDP on Friday.

In Australia the highlight this week is the September quarter CPI, due on Wednesday. Consensus has inflation easing to 1.8% annual from June’s 2.4%, providing scope for another rate cut if the RBA does decide to change its mind. The fall reflects the initial boost from the carbon tax “dropping out” of the numbers.

On the Australian corporate front, the AGM season powers on this week and several major boards will be wary of a second strike to vote down remuneration. Company meetings this week include Brambles ((BXB)) on Tuesday, energy companies AGL ((AGK)) and Origin ((ORG)) on Wednesday, Amcor ((AMC)), Newcrest Mining ((NCM)), Suncorp ((SUN)) and Toll Holdings ((TOL)) on Thursday, and Transfield Services ((TSE)) on Friday.

BHP Billiton ((BHP)) will release its quarterly production report on Tuesday while AMP will report its quarterly funds flow and ResMed ((RMD)) its quarterly profit on Friday.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon.
 

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

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