The Monday Report

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Greg Peel

Trade balances were in the frame on Friday, beginning with China. Chinese exports surged 34.9% year on year in November compared to 22.9% in October and economist expectations of 22.4%. Imports jumped 37.7% to provide a welcome balance compared to 25.3% in October and 24.5% expectation.

Wall Street was pleasantly surprised to learn that the US trade deficit had declined by an unexpected 13% in October (note: the ROW runs a month behind China in such data releases as they are not merely “reference points”) and 8.3% with China specifically. Exports to China jumped 30%, which is exactly the sort of news Wall Street wants to hear at a time when tax policy threatens to increase the budget deficit.

As Christmas approaches, the Michigan Uni consumer confidence index rose to 74.2 from 71.6 a fortnight ago which is good news for retailers. It's nevertheless still below the 76.0 achieved in June and the historically “confident” numbers in the 90s.

US stock markets thus posted a quiet but steady rally in Friday's session, with the Dow up 40 or 0.4% and the S&P up 0.6% to 1240 ahead of the anticipated release on Chinese inflation data on the Saturday. While uneventful, the S&P did reach a new post-GFC high.

On Saturday, Beijing announced its consumer price index rose 5.1% year on year in November compared to 4.4% in October and 4.8% expectation. This result, along with the strong trade data, applies yet more pressure for a Chinese rate rise. Markets had been braced for such an announcement on Saturday but so far Beijing has only raised its bank reserve requirement – for the sixth time this year – by 0.5%.

Beijing's hesitation has been attributed to the food element of the CPI which rose 11.7% in November, up from 10.1% in October. Seasonal factors are relevant, but non-food inflation rose 1.9% in November from 1.6% in October so the pressure is still on. Data on industrial production, retail sales and investment all showed steady or slightly stronger results.

Over in Europe, the EU announced an extension to the application of its Irish bail-out package to allow the Irish parliament more time to debate the deal. This saw the euro weaker and the US dollar was stronger on the trade balance result. The Chinese data have nevertheless pulled the dollar back to square since Friday. The Aussie and gold are also flat.

Copper pushed on by another 1% in an otherwise mixed session for base metals, while oil slipped US58c to US$87.79/bbl. The US ten-year bond yield also pushed on, rising 11 basis points to 3.32%. 

Right now it seems that US bond yields will rise on conflicting excuses. One could say the strong trade balance result is positive for the economy, which implies (at some stage) an interest rate rise, and also reduces the deficit problem. Or one can say the deficit problem is still implying latter inflation, and thus less value in US bonds. Take your pick.

The SPI Overnight was up 12 points or 0.2%.

It's a busy week this week in the US beginning on Tuesday with a Fed monetary policy update. There's not likely to be much new news within however, one assumes. Tuesday also brings business inventories, retail sales and the producer price index, while Wednesday sees industrial production, capital flows, housing market sentiment, the New York Fed manufacturing index and the consumer price index.

Thursday it's housing starts and the Philly manufacturing index and Friday leading economic indicators. All these data will have Wall Street on edge.

Australia's economic week begins on Tuesday with the third quarter dwelling starts report, along with NAB's monthly business sentiment survey. Wednesday it's vehicle sales and Westpac's consumer confidence survey (another Christmas indicator) and Thursday sees the RBA's quarterly bulletin.

AGMs are dwindling but it's bank week next week, with all of Westpac ((WBC)), ANZ ((ANZ)) and National ((NAB)) holding meetings.

No doubt the bank boards will need to be ready to field questions over the government's proposed regulatory changes announced yesterday. At first glance there is nothing too onerous, leading the Opposition to call the changes impotent. Bank analysts will now be hard at work trying to dig down past the spin and into the substance to arrive at pragmatic conclusions and forecast implications. Bank share prices have already taken into account some level of expectation that the Big Four will be losers and the smaller banks winners, so now now it's just a matter of by what degree.

Rudi will be appearing on Sky Business's Lunch Money on Wednesday.

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

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