The needle on the Madometer is swinging wildly to extreme bearishness today:
The market learned two critical pieces of information this week. Namely that the Reserve Bank is unlikely to cut rates again and, at the very least, a cut early next year is out. The second is that there is a growing disconnect between the Aussie sharemarket and the economy.
How so? Because it’s pretty obvious that the consumer sector is strengthening, which kind of matters, by the way. The vast bulk of the equity market depends directly on the health of the consumer. Not to forget that consumer spending by itself is about 60 per cent of the total economy.
Cue a decent jump in consumer confidence of late. On two separate measures, sentiment has spiked recently, and in both cases we’re seeing some of the best results in years.
Consumer sentiment is at average levels which equates to very subdued given where we are in the business cycle, that is, late on with asset prices having boomed:
Retail sales are fading not improving.
And the ABS jobs numbers are questionable at best. Yes, employment has been grinding higher but the pace is weak compared with all other cycles, ABS numberwang notwithstanding:
That is not to say that the jobs market has not improved. It has. But not at the pace the ABS’s dodgy figures are suggesting for October.
Let’s not forget either that the job gains are in sectors that have already peaked and will begin to decline from earlyish next year, even as the global mining crash enters another down leg and the car industry shutters.
If the Australian stock market is going to re-rate next year it is not going to be upwards.
