Daily Market Reports | Aug 16 2010
By Greg Peel
On Friday night the eurozone posted its June quarter GDP which came in at 1.0% growth against 0.7% expectation. It was the fastest pace of growth in four years, and Germany was the star with 2.2% growth compared to 1.4% expectation.
The euro initially jumped on the news but soon faded. Traders recognised that a weaker euro during the quarter boosted exports, particularly to emerging markets. The euro has since recovered ground and the impact of austerity measures across the zone has yet to be felt in earnest.
Also not helping the euro was weak demand for an Italian bond auction.
Also not helping the euro was further strength in the US dollar. The irony is that weak US data of late have caused renewed strength in the greenback. A weak economy should mean a weak currency, but in the case of the reserve currency it's simply a safe haven or risk aversion trade as investors seek sanctuary in US bonds.
On Friday the July retail sales number showed a rise of 0.4%, which seemed healthy enough. However economists wanted 0.5% and if you remove the impact of strong petrol prices, and strip out lumpy auto sales, net retail sales fell 0.2%.
Petrol prices were also behind a 0.3% jump in the July CPI following a 0.1% fall in June. The core CPI nevertheless rose only 0.1%, maintaining a year-on-year rate of 0.9% for the fourth month in succession. This is the lowest run for inflation since 1966 and very much a reason why Americans are currently fearing deflation.
Business inventories rose 0.3% in June – better than the 0.2% expectation and the highest growth for a year. A return to strength in the inventory cycle has been a driver of US GDP growth, but it can also be bad news. Business sales fell 0.6% in June after a 1.2% drop in May, further indicating that businesses may have become too confident earlier in the year and are now going to be stuck with unsold goods. That is, once more, a deflationary scenario.
There was good news from the fortnightly Michigan Uni consumer confidence index, which jumped from 67.8 to 69.9 to beat forecasts. The previous reading was the lowest since November. Is the consumer confident enough to stave off deflation and a double dip?
Wall Street wasn't sure what to make of it all, and in a lacklustre session stumbled along to a close of 16 points or 0.2% down in the Dow. The S&P 500 fell 0.4% to 1079 and is now sitting below its 50-day moving average.
The US dollar index rose 0.4% to 82.92 making it a difficult decision for gold, which added US$1.90 to US$1215.40/oz. Deflation and a stronger dollar are both negative for gold, but the potential for longer term monetary inflation brought about by further QE stimulus is positive. The Aussie lost further ground to US$0.8928.
Oil fell only US35c to US$75.39/bbl and moves in London base metals were similarly small and mixed.
The SPI Overnight fell a rather ominous 35 points, or 0.8%.
For Australia over the next week and week after, it will be all about corporate earnings. The bulk of listed companies will report in that time and there are too many of them for me to now specifically list them each day. The trend of reports to date has not been particularly positive, with caution in guidance and outlook the feature. It will be FY11 outlooks that will have the most impact on share prices.
Economic data are thankfully kept to a minimum during the Australian results season. We have vehicle sales today, Westpac's leading index, housing affordability and wage costs on Wednesday, and import data on Thursday. On Tuesday nevertheless, the RBA will release the minutes of its August policy meeting.
It will be a lot busier on the economic front in the US this week. Tonight sees the New York Fed activity index, housing sentiment and long term capital flows. Tuesday it's the PPI, housing starts and industrial production. Thursday wraps up with the Philadelphia Fed activity index and leading economic indicators.
There are still a handful of companies to report second quarter earnings in the US, and among the biggies this week is Wal-Mart.
On Tuesday, the Conference Board will release its leading economic index for China.
For further global economic release dates and local company events please refer to the FNArena Calendar.
