The Monday Report

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By Greg Peel

There’s nothing like the smell of freshly printed money to get a stock market all excited. And the anticipation of more freshly printed money to come. Bridge Street posted its reaction on Friday to Fed chair nominee Janet Yellen’s assertion that the Fed “had more to do” by staging a healthy rally, albeit a wobbly few days saw the ASX 200 net down for the week given earlier fears QE tapering might begin in December. Yellen appears to have put that notion to bed.

The banks were again among the leaders on Friday, having led the selling earlier in the week. Funny how the staid old banks, once considered as “defensives”, have become, the high beta go-to trade for the Australian market. Industrials and consumer discretionary also joined in on Friday. Cyclicals are the place to be for “QE infinity”.

China announced the loosening of an old policy as part of its plenary reforms on Friday. The one-child rule will no longer apply if one of the parents is themselves a “one child”. On a financial basis, this implies more rapid population growth in China (because let’s face it, they could use a few more) and hence greater domestic demand.

Wall Street took this on board on Friday night, but otherwise was still floating along on a Yellen trip. The Dow rose 85 points or 0.5%, the S&P gained 0.4% to 1798, and the Nasdaq added 0.3%. The Dow and S&P both finished the week at new highs, and marked a sixth consecutive week of gains.

Never mind that the Empire State manufacturing index turned negative for the first time since May, falling to minus 2.2 this month from plus 1.5 in October when economists were forecasting plus 5.5. Or that industrial production fell for the first time since July, dropping 0.1% in October when economists had forecast a flat result.

Despite the promise of more funny money, gold has not kicked on as the gold bugs might have hoped. It was as good as unchanged on Friday at US$1287.80/oz. The US dollar index fell 0.2% to 80.83 and unfortunately the Aussie pushed higher again, up 0.5% to US$0.9370. Any good news from China translates to Aussie strength.

The US bond market has not responded as one might expect to Yellen’s commentary, remaining steady around the 2.7% mark on the ten-year. This yield fell to 2.5% in late October following the shutdown, on the assumption the Fed would have to postpone tapering, but rose back as December tapering remained a possibility. December tapering now appears unlikely at best, but the bond market is hedging its bets and refusing to follow the stock market’s lead.

It must be pretty dull down on the LME these days, with base metal prices again going nowhere on Friday. No endless QE joy there. The oils were also little moved, with Brent sitting at US$108.50/bbl and West Texas at US$93.74/bbl.

Spot iron ore rose US20c to US$136.80/t.

The SPI Overnight rose 8 points.

The US is still catching up on some delayed data releases – a result of the shutdown pushing everything back in time. This week will see both scheduled releases and releases previously scheduled for earlier in the month.

On Monday it's housing market sentiment and on Tuesday it's housing starts. Wednesday brings existing home sales along with delayed CPI, retails sales and business inventory data. The minutes of the last Fed policy meeting will be released on Wednesday, but have likely been superseded by Yellen’s testimony last week.

On Thursday it’s the PPI, Philadelphia Fed manufacturing index and a flash estimate of the November manufacturing PMI.

HSBC will also flash its China PMI on Thursday, following on from Chinese property prices today and foreign direct investment tomorrow.

The eurozone has swung back into focus following weak inflation and GDP data and an ECB rate cut last week. What had appeared to be the first flush of recovery in Europe has given way to talk of further recession. This week sees the eurozone trade balance and flash PMIs along with the ZEW investor sentiment survey and IFO business sentiment survey.

It’s a quiet week for Australia economically, with Westpac’s leading economic index on Wednesday the only highlight beyond Tuesday’s release of the minutes of the November RBA meeting. As Fiorente romped it in, the RBA was bemoaning a too-strong Aussie and leaving economists wondering.

Glenn Stevens will speak on Thursday on the thirtieth anniversary of the float of the Aussie.

It will not be a quiet week for local AGMs, although next week’s flood for the most part represents companies further down the market cap ladder. A notable exception is BHP Billiton ((BHP)) on Thursday, while Myer ((MYR)) and Virgin Australia ((VAH)) on Wednesday, Sonic Health Care ((SHL)) on Thursday and David Jones ((DJS)) on Friday will all keep the market interested, among many more.

Rudi will not make his usual appearances on Sky Business today or on Wednesday as he is in Canberra for, among other things, his final investors' presentation of 2013. Note there has been a last minute venue change. Title of his presentation is "Where Else Are You Going To Put Your Money?". He'll be back in Sydney late on Wednesday so on Thursday he will be on PayTV at noon and again between 7-8pm for the Switzer Report.
 

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

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