Hope abounds across markets as the US ends it’s impasse, the Taper is off the Table and Chinese growth hits 7.8%.
-It truly is good news week with the end to the US budget impasses and a promise from the Republicans they won’t put us through that again on the next round of discussion early next year. We can probably take thm at their word because Ted Cruz is likely to have achieved his aim and made his point. As Henry Blodget wrote during the week “What Ted Cruz Just Did Is A National Disgrace — But It Was Brilliant And I Sort Of Like Him”.
It really is hard to disagree and the fact that the fabric and structure of markets didn’t break down – the S&P held up really well as did emerging markets and the Aussie dollar, suggesting that we are in for an enduring period of market ebullience in the weeks ahead.
– In this vein the S&P 500 has broken up to a new all time high over the past 2 days and finished the week at 1745 up 12 points or 0.68% is a real boon for the bulls. The NASDAQ closed up 1.32% with Google on a tear above $1000 while the Dow was up a more modest 0.18% buffeted by competing forces. On the Sydney Futures Exchange the SPI 200 futures are up 22 points to 5343 bid so it is going to be a good start to the week.
Here is a chart of the S&P 500 which many technicians reckon could have another 100 points in it – that’s 1830. The Australian market will love that.
As Darth Vader would say if he was a chartist, the trend is strong in this one.
– In Australia as well it was good news or the most part with With the NAB Business survey showing that expectations hit a 4 year high even though conditions are at a 2 year low. It is the clash of experience and expectation and if the ANZ economics team are right then exports are going to drag the economy through which will circulate more money through the economy and see growth at 4.4% in 2016. Of course that means rates will need to move higher. But not until 2015 and then only to 4% which isn’t so bad.
Bill Evans from Westpac doesn’t agree he reckons the higher Aussie dollar, low inflation and weak domestic demand will see Australian rates head lower again next year.
Both are valid views and the Aussie Dollar this morning at 96.60 cents suggests that Bill might be right even if the ANZ is on exports kicking in as Australia transitions from mining investment to mining production.
There is a lot of resistance at 0.9770-0.9800 which is where the Aussie is headed – but if that breaks then Clifford Bennett might just be right and the Aussie will be at parity by Christmas.
– Really good news in China too with China’s Q3 GDP bouncing to 7.8% from 7.5% last time as a result of the mini stimulus at the start of the quarter. That is important because it shows how easy it is for policy makers to respond to any unintended slowing in growth and because it shows that the death of Chinese growth has been greatly exaggerated.
The ANZ also looked at housing in China yesterday and noted that, “As long as the housing sector remains upbeat, China’s investment growth is expected to maintain its solid pace, which will contribute steadily to the economy, and China’s demand for hard commodities will remain elevated.”
Clearly housing is performing well.
– Good news on the interest rate front as well with the shutdown in the US and the cost and uncertainty surrounding it driving rates lower. The US 10 year finished the week at 2.58% which is a long way from 3% and will have a positive impact on US mortgage rates and thus the housing sector. Now as scary as it may be to be using housing to get the US economy going again it is part of the transmission mechanism for monetary policy. No housing recovery in the US then no sustainable recovery and for that we need US 10’s at or below 2.5%.
Bill Evans from Westpac reckons that the “no Taper” has not yet finished and that there is further downside for US and Australian yields and unfortunately for Australian growth the Aussie dollar has not recovered as much as it might still.
– No default, no Taper, lower bond rates and strong China adds up to improved risk appetite around the world. Bears are on the run in the S&P, the Aussie, the Euro, GBP and maybe even gold.
The outlook is clouded by the shutdown and we have a raft of delayed data to chew through over the next couple of weeks with US non-farm payrolls on the 22nd likely to be very important.
The big question is whether investors do as they have many times in the past and and ignore the strong stuff for a while in favour of the weaker data and an expectation that it will take up to 3 months for the shutdown to wash through the data releases.
Time will tell but it’s been a good week for markets and the bulls but perhaps not such a good week for the Australian Budgetary forecasts.
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