Daily Market Reports | Mar 11 2013
By Greg Peel
The US added 236,000 new jobs in February, well above the 165,000 consensus estimate and even pipping the oft ambitious “whisper number”, which in this case was 200,000. The unemployment rate fell to 7.7% from 7.9% — its lowest level post GFC.
Wall Street’s immediate reaction was to buy, hence the Dow leapt 84 points from the bell. Then someone must have pointed out that the Fed’s QE3 exit strategy is based on an unemployment target rate, and by the way it’s Friday and stocks have been up every day in the week and into blue sky territory as far as the Dow is concerned. So just as quickly as it was bought it was sold, almost back to square at 11am.
But this is not a market that wants to pull back, and over the course of the session the indices drifted higher to close with the Dow up 67 points or 0.5%, the S&P up 0.5% to 1551 (less than 1% below the all-time peak) and the Nasdaq up 0.4%. Both the Dow and the S&P added 2.2% for the week.
While monthly non-farm payroll data can often be later revised quite heavily, there are few who believe the US economy is not beginning to look relatively healthy. The question remains as to whether the US economy could stand on its own two feet without the Fed’s support. Clearly Wall Street is very twitchy about any signs the Fed might start rolling back its stimulus, but Ben Bernanke has insisted QE3 is here to stay for the time being.
It remains a little unclear as to whether China’s economy is looking healthy or not. China’s GDP grew 7.8% in 2012 to mark its lowest rate of growth since 1999, albeit close enough to Beijing’s target. The target for 2013 is 7.5% despite signs the Chinese economy turned the corner in the fourth quarter and despite a 50% increase in stimulus announced by the new government. Data released on Friday and Saturday were mixed, but once again we have to consider the numbers within the context of the disruptive New Year holiday break.
February saw Chinese exports jump 21.8% year on year, down from 25% growth in January, but much higher than economist expectations of only 5%. Imports fell 15.2% compared to a 28.8% gain in January and against expectations of a 10% decline. China thus posted a trade surplus for the month when the first two months typically provide deficits.
Industrial production and retail sales numbers for February disappointed, with production rising 9.9% year to date compared to 11.4% last year, and sales rising 12.3% year to date compared with 14.7%. Fixed asset investment nevertheless rose 21.2% compared to 20.6%. More worrying was the CPI inflation result, which showed a jump to 3.2% from 2.0% in January and ahead of 3.0% consensus. Beijing is once again faced with the difficult task of providing economic stimulus without causing a spike in inflation.
The true picture should become a little clearer next month when March data are released and the New Year is ironed over.
The strong US jobs number on Friday pushed the US dollar higher yet again. The dollar index rose 0.7% to 82.75, assisted further by a weaker euro following rating agency Fitch’s downgrade of a rudderless Italy to BBB plus from A minus.
Interestingly, US bonds have suddenly started to move. The benchmark ten-year yield had grafted up to 2% earlier in the year before sequester fears and confirmation of ongoing Fed purchases saw more safe haven buying emerge, sending the yield down to 1.85% despite an ever rising stock market. But last week saw selling return, and a 6 basis point rise on Friday has taken the yield to 2.05%.
When commentators have argued over the strength or otherwise of the Wall Street rally recently, the less convinced have pointed to a stable US bond rate as evidence the market was clearly switching out of cash positions and into risk assets, but not yet game enough to engage in switching out of safe haven bonds. It is assumed that if such a switch begins, it could open the dam to the upside for stocks.
Commodities, on the other hand, are currently beholden to an ever strengthening US dollar. Without yet having had a chance to respond to supposedly disappointing weekend Chinese data, base metals were mixed, but mostly a little lower on Friday, while Brent crude fell US47c to US$110.61/bbl and West Texas fell US$1.34 to US$90.22/bbl. Spot iron ore is unchanged at US$146.30/t.
Gold was near enough to steady at US$1578.80/oz ,while the Aussie is slightly lower at US$1.0255.
The SPI Overnight closed up 20 points or 0.4% on Friday, ahead of the Chinese data dump.
There are some important US data releases this week from which to gauge the strength of the US recovery. We’ll see business inventories and retail sales on Wednesday, the PPI on Thursday, and industrial production, the Empire State manufacturing index and the CPI on Friday.
Australian economic highlights this week include the NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday, along with housing finance and investment lending numbers. On Thursday, the unemployment numbers will be released.
The RBNZ will make a rate decision on Thursday.
Rudi will appear on Sky Business today at 11.15am, Thursday at noon and also at 7pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
