Wall Street has taken the Paris tragedy in its stride to be up triple digit numbers with a couple of hours to trade and it says a lot about how the professional traders view the economic implications of this gutless attack on the French capital and Western way of life. There is uncertainty but there’s not enough to create market panic.
With that in mind, let’s do an update on how our economy is tracking in light of the great employment figures we got late last week. Are they a game changer? And were they overshadowed by Wall Street’s worst week since August last week and then the fallout from Paris?
If so, will our improving economic outlook set us up for a good finish to the year on the stock market, as history and Santa Claus have delivered in more years than not? Or will this potentially positive finish for stocks be grinched by the Fed raising interest rates in December in the US?
The best-case scenario is that we get reinforcement that our economy is really improving and the best piece of market-moving economic data might be the economic growth result for the September quarter, which we see in the first week of December. This has been tipped by the RBA to be a good number but so far I have not seen the stock market embrace this expectation of the Big Bank, so maybe they doubt the Glenn Stevens’ crystal ball!
If it turns out to be good, which I think it will be looking at other indicators, and if the November employment story we get early next month doesn’t blow the great October numbers out of the credibility stakes, then we could see stocks take off.
The next December hurdle for the stock market will be the Fed decision on rates, which I think will bring the first rise since the GFC. However, I think the statement about a slow path back to normal interest rates and all of this recent negativity will result in a rally. It will be like a relief rally because this long train-coming rate rise is over and done with and now investors can focus on the reason why rates are rising — the US economy is on the improve!
Let me pick out the big pluses that too many local and foreign investors in our stock market are missing:
• Employment was up 58,600 in October.
• 315,000 jobs have been created in a year and that’s the best rise in seven and a half years.
• Unemployment fell from 6.2% to 5.9%.
• Job vacancies are the best in three years.
• Job ads up 14 out of 16 months and latest reading was the best in 15 months.
• Car sales in the year to October are 1,146,194 — a record!
• Total new loans (personal, business, housing and leasing) rose by 6.4% in September to a 7½-year high of $75.3 billion. It was the biggest monthly rise in lending in eight months.
• The Westpac/Melbourne Institute index of consumer confidence rose by 3.9% in November to 101.7 – the highest reading since May 2015 and now optimists outnumber pessimists.
• Christmas spending intentions are at a 7-year high, with 16.9% of respondents expected to spend more this year.
• Business conditions are around five year highs and while business confidence is positive, it dipped a little in October after a big spike in September.
• The Roy Morgan survey of business confidence is much more positive, going from 102.6 to 119.3 between August and October, which is huge.
• Tourist arrivals rose by 2.4% in September to record highs.
• Work started on a record 211,484 new dwellings over the year to June up 16.9% and that should have great multiplier effects on the economy.
Add to this the Turnbull ‘turn on’ effect, which has encouraged a lot of expert commentators to point to the economic pluses from the recent change in leadership and there are good reasons to be cautiously positive about a 2016 economic rebound. And if that looks more likely, a stock market will move ahead of it.
We simply need the economic data to keep delivering the positive story that has shown up lately, which has been virtually unheralded in the media, and then Santa Claus could easily come to town for Aussie stocks.