Having briefly scanned the dataflow Friday before checking out the price action, your writer had thought he may be confronted with somewhat softer markets. Wrong. Rather, a combination of slightly weaker than expected GDP growth in Europe and a wider trade deficit and decline in consumer confidence in the US seems to have been trumped by a decent earnings report from Walt Disney (DIS) and upped Christmas guidance from JC Penney (JCP). Indeed, in the US consumer cyclicals led the way with a 1.5% gain, versus a 0.6% gain for the S&P 500. Commodity markets were mixed. The most notable features were a new closing high for gold and another sharp jump in the Baltic Dry Freight Index. The latter is now at its highest level this year, with strong Chinese demand for core and iron ore, port congestion in China and Australia and generally tight ship availability.
Indeed there is a toy called a "Weeble", shaped more or less like an egg with a weight at the bottom so that no matter how hard or frequently you try to knock it down, it always bounces back. Risk appetite, it feels, is the market's Weeble of the moment. As often as it is knocked over by a nugget of bad news, concerns over risk asset valuation or the vagaries of chartists, risk appetite comes bouncing back. The "weight" which ensures the bounce back is a combination of the ongoing improvement in the global economy and the power of the trend. Occasional disappointments on the data front have simply not got the power to force a change in attitude towards risk so long as the trend remains your friend. Today this argument has been reinforced by yet more dodgy REAL WORLD data with US retail sales ex autos disappointing at 0.2% versus the 0.4% expected and the Empire manufacturing survey slipping to 23.51 against a forecast of 30. Yet the market just keeps on rallying.
US stocks in the news today include bookseller Barnes and Noble as a private equity firm has raised their stake to 17% and Citigroup (C) after the legendary Paulsen & Co picked up 300 million shares. A story in Barron's sees value in Exxon Mobil (XOM) and suggests that the stock may reach $90 next year while they view FedEx as good punt and say the shares may rise to $100. Retailer Lowe's had a slight miss on EPS and may see some selling. Staying with retail, Nordstrom (JWN) should be supported by a Goldman Sachs (GS) "buy" recommendation today. I'd expect Barrick Gold, Alcoa (AA), Newmont Mining etc all to be bid today on the moves in basic resources stocks. Intel (INTC) raised their quarterly dividend by 12.5% to 15.75c and Sprint Nextel (S) has leapt 8% on an upgrade at Credit Suisse. Builder Toll Bros may also be active after analysts at Citibank raised their price target to $25.
Today's Market Moving Stories
- Concern on dilution, which was heightened by a series of public offering announcements in Japan (Mitsubishi was off 5.5% on a newspaper report of a $11.2 rights issue), may have been the reason behind the Nikkei's underperformance overnight despite the much-stronger-than-consensus Japan's 3Q GDP. Although Japan's 3Q headline GDP was much stronger than consensus (1.2% QoQ vs 0.7% expected), this was mainly due to a significant upward surprise to inventory. The implication for the economic outlook is not necessarily positive. On the negative sign, the domestic demand deflator fell 2.6%, the largest drop in 51 years.
- The APEC meeting saw a good deal of talk about the next Fed-fuelled bubble, where the near zero-rate policy and weak dollar create imbalances in other parts of the world, and Asia in particular. Hong Kong's Tsang Said that "America is doing exactly what Japan did last time," adding that Japan's zero interest rate policy contributed to the 1997 Asian financial crisis and U.S.
