Daily Market Reports | Jan 14 2013
By Rudi Filapek-Vandyck, Editor FNArena
Best Wishes to you all for the New Year ahead. FNArena jumps back into action today, albeit at reduced manpower for the week ahead. Greg Peel is enjoying one more week of hiding from the sun (though not necessarily today) and journalist Eva had to evacuate due to bushfires raging through her habitat. We send Eva all the moral support she needs, as times are looking tough right now. We'd like to extend this support to all our subscribers and readers that may be facing similar, difficult challenges. Here's hoping for better than worst case outcomes.
In terms of global risk assets, the strong rally that characterised the final quarter of 2012 has decelerated noticeably in the first two weeks of January. Who's to blame?
Probably the most important observation made during these past few weeks is that global risk assets and policy actions by central bankers have never before been so closely correlated as has been the case in 2012 and, indeed, since March 2009. Some number crunchers out there have calculated a correlation of 85% between the Fed's balance sheet and US equities, which means central bank policies have just about superseded everything else over the past four years. Should we still be talking about economic growth and earnings forecasts?
Note that when the Fed started dropping a few (probably premature) hints about possibly reining in the current monetary stimulus ("QEternity") later in the year, US equities immediately went into retreat (on the day) and the same thing happened on Friday when Chinese inflation data exceeded market expectations. Was this Mr Market dropping its own hints that central bank policies are now the most important factor in the game?
Maybe one market observer summarised it correctly when he stated: “share market bulls should hope the economic picture remains bleak, as it will ensure continued support from central banks.”
The irony is, however, most economists are looking forward to a gradual improving economic picture, supported by strengthening economies in the US, China, Europe and Japan. Whether that'll prove too optimistic remains to be seen. The new “Emperor” of Japan, Shinzo Abe, has already launched yet another multi-trillion stimulus program.
Keep an eye on bond yields later in the year. They may well become the most accurate market signal that is publicly available.
Just in case your attention span was extended to the max late last year when all we heard and read about was the dreadful "Fiscal Cliff" – the circus will return in February with the added complication of the US debt ceiling.
Here's another observation worth pointing out: when it comes to China-leveraged themes such as copper and iron ore, the underlying picture for 2013 seems to be a reverse mirror of 2012 when things didn't look too great in the first half and subsequently improved in the second half. The opposite scenario seems to be on the cards for this year.
That may also be the case for the Australian economy in general, with both teams of economists at NAB and ANZ Bank this morning conceding things look better than previously anticipated in the early stages of the new year. But both teams maintain the local economy has some prickly question marks to deal with later in the year, which is why they retain predictions for (several) more RBA rate cuts.
Meanwhile, the US reporting season is in its infantile stage and both bulls and bears have taken the first reports and made the results their own. The first group is excited because most reports proved better than expected. The second group points out three-quarters of guidances given were to the downside. I'd add if the second trend becomes the ruling theme it'll prove an anchor for valuations, but at the same time, as long as central bankers rule the world…
Equity markets on Friday weren't providing much in terms of a lead for the Australian market on Monday morning. The higher than projected CPI outcome in China drained all that was left in terms of market enthusiasm. Most commodities took a step back on the day, including crude oil, gold and iron ore. The latter retreated by US$3.30 to US$154.90/tonne on Friday.
SPI futures are nevertheless indicating a mildly positive opening for the market in general today.
As far as the economic calendar goes, there are a whole slew of speeches by Federal Reserve voters and non-voters this week, starting with Ben Bernanke himself later this evening. In Australia we can amuse ourselves with TD Securities independent inflation estimate, housing finance data for November and the ANZ job ads series for December. Later in the week we have Westpac's update on consumer confidence, new motor vehicle sales and engineering construction data for the September quarter all to be released on Thursday.
In the US we will await the release of retail sales and CPI on Tuesday alongside business inventories and the Empire State manufacturing survey. On Wednesday the Federal Reserve releases its Beige Book and updates for industrial production and CPI will be released. Thursday offers housing starts and the Philadelphia manufacturing survey. Friday will close the week's calendar with the consumer confidence survey conducted by the University of Michigan.
China will remain on investors' radar this week. Today sees the release of money supply growth data, but Friday will be the day. GDP, fixed asset investment (ex-rural), industrial production and retail sales are all on the agenda.
Elsewhere, Japan has a public holiday today (so market closed), while Germany releases its GDP on Tuesday.
In terms of the US reporting season, the number of releases is stepping up a few notches this week, but a quick glance through what seems available in scheduled releases suggests we'll have to wait until Wednesday (US time) to see some big guns publish their quarterly results. These include eBay and JP Morgan Chase. Other releases on that day include Charles Shwabb, Bank of New York Mellon, Goldman Sachs and Northern Trust.
Equities didn't get anyone's heart pumping on Friday, but things certainly were different for FX traders. A downswing of 1.1% in the NZD/USD undid all of the prior four days gains to leave the cross flat on the week. AUD/USD lost 0.6% to be the second worst performer on the day (according to NAB). The EUR surged yet another 0.5% to Thursday’s post-ECB press conference rally.
FNArena resumes normal operations as of today. Subscribers should have already received the first email notification regarding the daily Australian Broker Call Report. Note that all estimates and upgrades, downgrades and targets have been updated for the holiday gap since December 22. Tomorrow will see resumption of the daily emails. My first Weekly Insights email will go out next week.
We're ready for the year ahead. We hope you are too.
I will be on Sky Business this week on Lunch Money on Thursday (noon-12.45pm).
For further global economic release dates and local company events please refer to the FNArena Calendar.
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