It’s Friday, so life is already good. Now make it even better by catching up in style:
– Woohoo! Tthe US economy really is showing solid and sustainable signs of life with last night’s release of Q3 GDP printing at 3.5% against 3% expected. It’s down from more than 4% last quarter, but still a solid result.
– What’s strange about the data though is that the market didn’t care – or at least stock and bond traders ignored the print last night. The reason given seems to be that the government contribution to growth was so unexpectedly strong. But coming a day after the end of QE it raises the question of whether this time might be different to the end of QEs 1 and 2 when the economy wasn’t strong enough to keep stock prices up on their own. I’ve been leery of this and it is too early to tell, but it’s a potential reality that must be considered.
– So at the close, the Dow was 1.3% higher, up 221 points to 17,195. The Nasdaq was up 0.37% to 4,566 while the S&P 500 rose 13 points to close at 1,995 for a gain of 0.64%. The high was 1,999 but the fact that the S&P 500 is so close to 2000 so soon after the mini-crash is a testament to current US stock market resilience.
– In Europe, the big news was that German inflation missed, with October CPI falling 0.3% against expectations of a 0.1% fall. This took the year-on-year rate to just 0.8% in Germany and pushed yields on 10-year bonds down to 0.81%. No doubt deflation speaks of weak aggregate demand in Germany and no doubt this increases the chances of the ECB president Draghi finally acting on his rhetoric with QE Europe-style.
– So stocks rallied from an early morning swoon, rescued by the US most likely. The FTSE rose 0.16%, the DAX rose 0.35% and the CAC was 0.74% higher.
– Locally overnight, futures traders have taken the December SPI 200 contract up 16 points to 5,473.
– In Asia yesterday, Shanghai was up again, rising another 0.76% to 2,391 while the Nikkei was bulled by the yen above 109, climbing 0.67% to 15,658. Today is going to be a big day for Japan with the release of vitally important CPI data, household spending, housing starts, the unemployment rate and of course, the BOJ meeting and outlook. The Hang Seng dipped 0.49% to 23,702 but stocks in Singapore and Mumbai rose with the Straits Times 0.31% higher and the Sensex rising 0.91%.
– On Currency markets, the Aussie rebounded and is at 0.8830 this morning on the back of a little risk-on meme and US dollar weakness which allowed the euro, which should have been crushed overnight on the back of the German data, to recover from a low of 1.2546 to be back at 1.2606 this morning. Sterling is back below 1.60 at 1.5998 and USDJPY at 109.20.
– On Commodity markets, the big news is gold getting poleaxed and it is back below $1,200 an ounce at $1,198 this morning. Nymex crude fell 1.52% to $80.95 a barrel, copper is at $3.08 a pound, iron ore for December rose 29 cents to $79.04 a tonne. Newcastle coal fell 25 cents to $64.60 a tonne.
On the data front, we get the release of RBA credit (read “debt”) data this morning along with PPI. Japanese data is super important for the region and markets and then German retail sales tonight is huge. Likewise the EU-wide CPI tonight is important. In the US, personal income and spending might actually get more traction than the GDP and the Chicago PMI is always worth a look.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Understandably, the major focus of yesterday’s profit announcement was the strategic issues, especially the likely sell-off of MLC Life and the UK banks. But if you stand back from this and look at the basic engine room, the impression is one of a hard slog in a low growth environment. Cash earnings before specified items were up 2.1%, loan growth eked out 5% growth, interest margins were flat over the last 6 months and business banking revenue fell 1.4%. Of course, all this comes against a background of an ongoing low interest rate environment in which the bank is paying an attractive dividend yield.
So I guess it’s hardly surprising that the NAB’s chart reflects this low growth, attractive valuation scenario. Standing back and looking at 2014, NAB has essentially traded inside a large sideways trading range. That range is between about $36 and $31.50 or a fluctuation or about 13%. The highs and lows reflect waxing and waning of market sentiment and also the accumulation and then payment of dividends.
The potential resistance line on the range is downward sloping and currently intersects around $35.20. The slow stochastic indicator is overbought and the stock is due to ex a 99c dividend next Friday. We might have to wait for more concrete news on asset sales to see a break into new ground.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC