SCOREBOARD: Brussels countdown

A fairly tame session in terms of news and dataflow overall, although the decision to cancel the Econfin meetings (meetings of European Union finance ministers) caused a bit of a stir. The summit meeting of leaders is still on for tonight and the decision to cancel the finance ministers' meetings was largely made for pragmatic reasons – i.e. awaiting decisions on the EFSF and Greek haircuts, which will be made (hopefully) at the leaders' summit. The EU's president basically said there was no point in convening a meeting of finance ministers until these were known. Fair enough, but in this market anything that even hints of indecision or division isn't a good thing and instantly heightens fear over what European leaders will come up with tonight. Hopes aren't high.

What wasn't boring though was some of the price action, especially in the commodity space. Check out gold, it's up some $50 to $1,703 and was accompanied by a 5 per cent gain in silver. We know the reasons why though. It's about the only safe asset left, particularly in an environment where some central banks, the Fed in particular, are working very hard at creating unanticipated inflation to help pay down some of their debt. It's very important to policymakers that it is unanticipated (in the broader economy), which is why you are reading on a daily basis that inflation has moderated or peaked when in fact it continues to accelerate. Meanwhile, and despite a wide acknowledgement at the Fed that second half growth is going to be significantly stronger than growth in the first half, the Fed's PR machine has been working hard to soften the market into accepting QE3. Indeed, enormous pressure is being placed on the ECB to print and inflate their way out. Unquestionably this is what the US is advising Europe to do. Indeed, Obama let that slip in some comments not too long ago. We know the BoE are doing just that. Nevertheless, if this is the best our policymakers can come up with – and it is – then it won't be much of a challenge for gold to push past $2,000 under any scenario.

Elsewhere, copper had a more sluggish session, falling 0.8 per cent, while crude was mixed. WTI surged a further 1.7 per cent to $92.86, but Brent fell 0.3 per cent to $111.11. Softs were a tad weaker.

European stocks were softer given the uncertainty over tonight's summit, although Dax wasn't off much (-0.1 per cent). The CAC index fell 1.4 per cent however, and the FTSE was off 0.4 per cent. Across the Atlantic Wall Street was harder hit, with some disappointing earnings also weighing on sentiment. At the close, the S&P500 was down 2 per cent (1,229) with financials, basic materials and consumer staples the key underperformers, although all sectors were in the red. The Dow fell 207 points to 11,706, the Nasdaq was 2.3 per cent weaker (2,638) and Australia's SPI fell 1 per cent (4,174).

In the forex space, the Australian dollar hit a low of 1.0397 overnight but quickly rebounded and now sits at 1.0442 or about 10 pips or so lower from 1630 AEDT. The euro reached a low of 1.3849 before lifting to 1.3918, which again is little changed from yesterday afternoon. Sterling was about 20 pips higher at the time of writing to 1.6005, while the yen is at 75.9 from 76.09.

Finally for debt, US Treasuries rallied hard with the 10-year yield down 11bps to 2.11 per cent, while the 5-year fell almost 10bps to 0.99 per cent. Even the 2-year managed to drop a further 3bps to sit at 0.25 per cent. Australian futures were up 6-7 ticks to sit at 96.14 on the 3s and 95.52 on the 10s.

Looking at the day ahead, we get Australian CPI today at 1130 AEDT and the market looks for a rise of 0.6 per cent with my forecast marginally lower than that, at 0.5 per cent. The market forecast for the underlying measures (average of trim and weighted median) is 0.6 per cent with me at 0.65 per cent. While many in the market view this print as the deciding point for next week's rate decision, I'm not convinced. To be sure, the RBA has said that "downward revisions to recent estimates of underlying inflation and the softer global economic outlook have made the outlook for inflation less concerning, providing scope for monetary policy to be supportive of economic activity, if needed.” But the key point, as I have highlighted before, is the bit stating "if needed”. That little addendum means that lower inflation is a necessary but not a sufficient condition for a rate cut next week. I'll go into more detail over the next few days, but as things stand now I doubt we'll be getting a cut. In my opinion, it is simply not credible for the RBA to deliver one.

In the US, data includes orders of durable goods and new home sales, while in Europe, apart from the summit, there are a few ECB speeches.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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