Global Markets Overview - 11/28/13

Blurred data lines

After positive overnight data, consumer confidence is still low.

Last night saw solid housing data, the Case-Shiller house price index jumping to a seven-and-a-half-year high, and building permits hitting a five-and-a-half-year high, though consumer confidence dropped to a four-month low. This suggests that the current recovery is still on an uneven footing.

The blurring of data continued with the release of the durable goods orders which showed a contraction of 0.1% compared to an expected 0.5% expansion, which points to a slowing business environment in the fourth quarter of the US calendar.

Public sector spending is one area analysts are pointing to, with defence contractor Lockheed Martin paring back staff and factories as the US shutdown bit into numbers. However, in the same report, the demand for durable household products shifted higher as housing demand increased the demand for goods in the home.

That good news was coupled with the release of the University of Michigan's consumer sentiment survey which jumped to 75.1 versus the expected 73.2 and 72 the month before.

We are now about a week away from the beginning of another round of discussions over the next continuous resolution for the US budget. The resolution needs to be passed before January 7, and although the market completely ignored the government shutdown in October, political rhetoric and bluster will be more stock-targeting and will see the Lockheed Martins of the US market under even more pressure; denting the business environment further.

That is then preceded by the renegotiation of the debt ceiling come the first week of February, and it will be right at the beginning of the first half reporting season and about two weeks before Janet Yellen take the reins from Ben Bernanke.

Judging by the reaction of the USD versus its major peers overnight, expectations are that current macro concerns are far from investors' minds. USD strength is going to accelerate the more that positive data is released.

However, I have reasons to pause here as any form of detrimental interruptions from the politicians will stay the hand of the Fed for a few months; having seen the board hold the line in October when things looks even more rosy.

Ahead of the Australian open

Ahead of the open the ASX 200 looks like snapping out of its current lull to add 20 to 5351, despite the fact industrial metals continues slide, with aluminium hitting a four-year low (watch Alumina for a possible pull back).

The banks continue to move up as we approach dividend payment week, having contracted between 3% and 4% since turn ex-dividend. If CBA's quarterly update is anything to go by, the banks looks set for another year of record earnings.

BHP's ADR is suggesting the stock will follow its London and New York listing higher, up 11 cents to $37.36 (+0.28%) as the iron ore price continues to inch higher to US$136 a tonne and the AUD contracts.

Today's biggest news is the release of private capital expenditure; it is one of the key measurements Glenn Stevens and his board looks at when discussing rates. If the read shows business expenditure is slowing, the threat of a rate cut may have to increase once more. The expenditure numbers illustrate business confidence in the areas of hiring, the outlook of the economy and the general business environment. A poor read will suggest the green-shot views of the RBA may be premature.

It will be the one of the biggest drivers of the AUD and considering the downward momentum it is currently experiencing, this data drop may give it a decent nudge down the 90 cent handle.

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