(WEDNESDAY 16TH NOVEMBER - JAMES GERRISH - 7.38am)...The DOW JONES added +17pts while the S&P 500 up +0.48%. European mkts were all lower (FTSE down -0.03%, German DAX off -0.87%, French CAC off -1.92%) while locally, the SPI FUTURES mkt is pricing a higher open up +8pts when trading kicks off here this morning.
Yesterday, the S&P/ASX 200 lost -18pts or -0.44% to close at 4285.
DOW JONES - Tech and financial stocks led the rise on the US overnight but volume was once again pretty light. Some buying came on optimism that Mario Monti will have some luck with the Italian debt situation (but those headlines change daily) while retail sales topped expectations in the US. We'll actually do something a little different this morning and focus on US economic metrics which have taken a back seat to European Issues of late.
S&P/ASX 200 - There has been fairly muted trading over the past two weeks but it seems the index wants to edge higher. We need to take out that last swing high on the chart (circled) before getting too optimistic but I think there is a high chance that will occur.
US ECONOMIC METRICS
A while back we wrote our view of the mkt as being...
....At the height of bearishness, it seemed investors were focused on 1. US Recession. 2. Hard landing in China (commodities bubble burst). 3. European Armageddon.
We think the US recession is a myth, we think the landing in China will be soft rather than hard and we have no idea what the outcome will be in Europe (but are hopeful).
With regard for China , we've had data out recently (notably inflation) that gives evidence against a hard landing + we've seen commodity mkts start to show signs of bottoming and even break to upside in the case of Crude Oil.
Looking at the US, there is still a lot of concern about a possible recession, but its important understand the trends that a prevalent during a sustained economic contraction. The US is no doubt struggling but as the charts below show, on most metrics the situation over there is not deteriorating which would be case if we were headed for a double dip style event.
Overnight we had retail sales come in better than expected and we clearly see there has been a recovery here post GFC + the trend is positive.
Unemployment is probably the biggest issue in the US at the moment with average monthly growth of 125,000 jobs. The number really needs to be closer to 250,000 jobs a month but the important element to consider when looking at the potential for a double dip style scenario is the trend. Is it improving or deteriorating. Clearly, the trend is improving.
Unemployment rate seems to have peaked and is tracking lower.
This graph is probably more relevant showing total unemployment plus all marginally attached workers plus total employed part time for economic reasons.
+ the time an individual is looking for job has peaked.
Here's one for those questioning the benefits of a tertiary education. The unemployment rate for an individual with a Bachelors degree or more is under 4.5% in the US + its peaked.
Here's the kicker! We speak a lot about US corporates being healthy and this chart shows it pretty clearly. It tracks US corporate profits after tax and the rebound has been sharp. Essentially, corporate profits have more than doubled since the GFC and are now above pre-GFC levels.
Another important element to consider is personal savings rates. During an economic contraction or when confidence is low, personal savings rates are high. At the moment, savings rates remain at elevated levels but they do seem to have peaked and are ticking lower. This is important as we want to be seeing money being pumped back into the economy rather horded underneath the mattress.
Part of the consumer caution in the States comes back to housing mkt. We know that housing was the basis for a lot of the GFC related pain however we're not yet seeing a recovery in that sector (yet).
Looking at these charts (and quite a few others) we come to the conclusion that the US economy is muddling through at this stage. Importantly, things aren't getting worse and as corporate profits show, companies are actually preforming pretty well.
MODEL PORTFOLIO UPDATES
Emerging Growth - Starpharma (SPL) is raising capital. Details out today.
No other updates
AUSTRALIAN DUAL LISTED STOCKS
In New York, News Corp rose by US$0.31 to US$17.71, equivalent to A$17.40, A$0.21 above its last close on the ASX.
ResMed rose by US$0.14 to US$27.86, equivalent to A$2.74, unchanged since its last close on the ASX.
In London, Rio Tinto rose 35.0 pence to £34.58, A$0.54 higher in Australian currency terms.
BHP-Billiton fell 9.5 pence to £19.61, A$0.15 lower in Australian currency terms.
Henderson Group Plc fell 1.8 pence to £1.14, A$0.03 lower in Australian currency terms
