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Rudd better go for it ASAP

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by Peter Switzer

Kevin Rudd goes into the caucus meeting today and the stares as well as the cheesed off looks will be hard for him to ignore. Only Craig Thomson might be under more pressure as both MPs could substantially change life for Labor’s leadership team in Canberra.

Fortunately for Kevin, he has a pretty thick skin and undoubtedly would have totalled up a fair bit of a desire to get even with his plotters over the past year and a bit, which would help repel the bad vibes. But judging from what the economy is doing, he better move fast or he will lose his chance to reclaim the keys to the Lodge.

Wall Street gains

Over the weekend, the US hailed some great jobs news with unemployment falling from 8.5 per cent to 8.3 per cent with 243,000 new positions created in January. Economists expected only 150,000 new jobs. This was the biggest jump since April 2011. Meanwhile, the Institute for Supply Management’s survey of the services sector spiked to the best level in 12 months. There was also a good read on factory orders.

As a consequence, the Dow was up 156.82 points, or 1.23 per cent, to 12,862.23 and is up 5.28 per cent for the year. The S&P 500 was up 19.36 points, or 1.46 per cent, to 1344.9 and is now up 6.94 per cent for the year.

The Nasdaq is up over 11 per cent for the year while the VIX or fear index is down to around 17. These results suggest that not only is the US economy performing better than expected, it implies there’s more confidence that the eurozone will come up with a more credible debt management plan.

Market kick ahead?

And if Europe impresses markets with its deals over the next few weeks, we could have a big market kick on our hands. March is a critical month for EU negotiations and it coincides with another round of funding overseas by local banks.

And this comes as the RBA is bound to cut interest rates tomorrow, which will help turn around an economy that has been feeling very negative for over a year. But things are just starting to look up.

Aussie data

Have a look at this data:

The NAB business confidence index rose from 2.4 to 2.9 in December. Business conditions improved from 0.8 to 1.2.
The Performance of Manufacturing index rose by 1.4 points to 51.6 in January. Any reading above 50 indicates that the manufacturing sector is expanding. It was only the second time that the PMI has been above 50 in seven months but shows some improvement is kicking in.
The Commonwealth Bank Business Sales Indicator (BSI) rose by 0.2 per cent in trend terms in December after rising by 0.3 per cent in November and 0.2 per cent in October. CommSec says, “The latest business sales index, highlights the modest recovery taking place in economy wide spending. Business activity has increased for four consecutive months, and there are signs that consumers are cautiously spending.”
The Federal Chamber of Automotive Industries reports that 76,783 cars were sold in January, up 4.3 per cent on a year ago.
Car affordability is the best it has been for 35 years with a person on the average wage needing to work for around 30 weeks to purchase a new Holden Commodore Omega auto or Ford Falcon XT auto
The Performance of Services index rose by 2.9 points to 51.9 in January, marking the first expansion in the sector in four months.
And inflation is around three per cent and not threatening to take off.

Despite these good signs, it will take at least to mid-year or even later for the overall economy to look decidedly better but we’re seeing some promising signs, though I reckon unemployment will increase for a few months.

Interesting times ahead

Sure, markets can turn. Europeans can disappoint and the Australian economy is still coping with a high dollar as well as a beaten-up housing sector, but if the economy picks up with interest rates on the slide, this could help Julia Gillard’s and Labor’s popularity in the polls.

I reckon the longer Kevin Rudd leaves his run, the harder it will be to kick Julia out of the Lodge. Interesting times lie ahead.

Politics might say Kevin Rudd should wait for Julia to fail more but the economy could go against him if he waits!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, February 06, 2012

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