The Monday Report

This story features NATIONAL AUSTRALIA BANK LIMITED. For more info SHARE ANALYSIS: NAB

By Greg Peel

Wall Street tried to open with a flourish on Friday night, buoyed by a September quarter GDP growth result of 2.0% year on year compared to expectations of 1.8%, and up from June's 1.3%. However on closer scrutiny, the result was not quite as rosy as it appeared. Not that 2% growth is all that rosy to begin with.

The housing sector was a solid performer, and retail spending picked up the pace from the June quarter, although income growth dragged. Beyond that, the biggest influence on the figure was the largest increase in government spending since 2009 – mostly military – which reversed an unusual fall in the June quarter. On the other hand, exports fell and business investment was weak.

The upcoming fiscal cliff will serve to put an end to government spending boosts. Business investment is weak as companies wait to see exactly what will happen with the cliff, the election, and the state of US government in 2013. A plunge over the cliff is assumed by most to imply a slide into recession. A resolution among the two parties can nevertheless only result in budget cuts and/or tax increases which, while reducing current uncertainty, will still act as a drag on economic growth. It's no wonder the larks are calling open-ended QE3 “QE infinity”.

Somewhat bizarrely, US consumer sentiment has reached its highest level in five years as measured by Michigan Uni, with an improving housing market and a quiet reduction in unemployment seen as the drivers. Consumers are providing the confidence businesses lack, so it remains to be seen whether businesses can come to the party once cliff issues are resolved, if they are to be. If the election puts Obama in the White House and the Republicans running Congress, the prognosis is not good.

And if there wasn't enough to worry about in the US, Hurricane Sandy is now making his presence felt along the east coast. Dubbed the “Frankenstorm”, Sandy is supposedly reminiscent of the “Perfect Storm” of movie fame which hit late last century but was too far offshore to have much of an impact. Expectations of the potential cost of damage to come this week run into the billions.

Sandy was no doubt in the back of traders minds as they contemplated economic data and earnings reports on Friday. Apple had posted a slight miss in the aftermarket the night before, but managed only a 1% fall having already come off some way. Amazon managed to fall short on revenues and on guidance but still jumped 7%, only to remind just how far down earnings forecasts have been shifted. All up it was a bumpy ride as the Dow fell 60 points over the morning but recovered over the afternoon. The Dow closed up 3 points, the S&P lost one point to 1411, and the Nasdaq rose 2 points.

Similarly flat closes were experienced across most other markets, with the exception of US bonds. Despite steady stock prices, the US ten-year yield dropped 8 basis points to 1.75% as the safe haven became once again attractive. The GDP result was not great, the fiscal cliff is looming, and to top things off, European officials were told on Friday that Greece may need another E30bn to carry it through to 2016 given a deeper than expected recession and the two-year delay in making budget targets. Meanwhile Spain reported an increase in unemployment to just over 25%.

The US dollar index was nevertheless steady at 80.04, gold is steady at US$1712.10/oz, and the Aussie is up a tad to US$1.0371. Base metals were mixed in London on mostly small moves. Hurricane Sandy is not an oil issue, so West Texas rose only US23c to US$86.28/bbl and Brent jumped US96c to US$109.55/bbl.

The SPI Overnight rose a healthy 18 points or 0.4%.

We now move into the last frantic week of presidential campaigning ahead of next Tuesday's election, with a raft of economic data due to add fuel to the fire. It's manufacturing PMI week, with the US figure out on Thursday, and it's unemployment week, with the private sector number out on Wednesday and non-farm payrolls on Friday.

We'll also see personal income and spending tonight, the Case-Shiller house price index and consumer confidence (the Conference Board measure) on Tuesday, the Chicago PMI on Wednesday, construction spending, chain store sales and vehicle sales on Thursday, and factory orders on Friday.

Thursday is also manufacturing PMI day for Australia, China and the UK, with the eurozone following up this month on the Friday. Australia will also see new home sales tomorrow, building approvals and private sector credit on Wednesday, the RP Data-Rismark house price index on Thursday, and the September quarter PPI on Friday, all ahead of next week's Cup Day rate decision.

On the local stock front, the AGM season rolls on relentlessly this week, and there is a wealth of resource sector production reports due. We'll also see quarterly updates from REITs GPT ((GPT)) and CFS Retail ((CFX)) on Monday and Tuesday respectively, an update from wealth manager Henderson Group ((HGG)) on Thursday along with a full-year result from BT Management ((BTT)). And National Bank ((NAB)) will officially releases its full-year result on Wednesday, having already pre-released the bad news on bad debt provisions.

Rudi is currently on assignment in Singapore en route to the US and will not be making any media appearances until late next month.
 

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

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