SCOREBOARD: Chinese dip

There wasn't a lot in the way of action overnight and most markets were mixed. Truth is, punters are still trying to decipher the 3.6 per cent fall on the Chinese stock market yesterday – the biggest fall since August 2011. Recall it was only a couple of weeks ago that we saw a similar thing when the Chinese stock market belted (down almost 3 per cent) over fears authorities would take more steps to rein in property. This is a lingering fear, so it obviously wasn't a pretty day on the Aussie market yesterday, with stocks down 1.5 per cent.

As yet, global equities appear to be more resilient, perhaps because the main policy measures that the Chinese government discussed last week were already in existence. So there isn't a lot that's new, it's just that the government said they would enforce them more strictly from now on. That's not to say it was a good session though, just not that bad – in Europe the Dax was off 0.2 per cent, the CaC rose 0.3 per cent while the FTSE100 is 0.5 per cent lower.

There still isn't much news here. Most of the talk is about austerity and elections. Against a backdrop where Portugal is seeking to renegotiate its bailout agreement (Ireland is also looking to extend the maturity on its bailout) given forecasts for a worsening recession and obvious public discontent, European finance ministers are talking about giving countries like Spain and Portugal more time to cut their budget deficits. The euro was little changed at 1.3025, while the Italian 10-year bond yield was also little changed at 4.81 per cent having hit a low of 4.73 per cent. Spain's 10-year was down about 6 bps to 5.08 per cent.

Over in the US, it's a similar situation – mixed. With about an hour left to trade the S&P500 is 0.4 per cent higher, the Dow is flat and the Nasdaq is flat as well (both up 0.1 per cent as I write). What I find remarkable through all of this, is the fact that stocks on both sides of the pond haven't slumped. Think about what fills the papers – austerity, electoral uncertainty in Italy, Chinese shares slumping – and stocks have held up quite well. It goes to show the support that's there.

Elsewhere in the forex and commodity spaces we saw gold flat ($1571), copper up 0.6 per cent and crude falling 0.6 per cent ($90.12). The Australian dollar is otherwise off its session low of 1.0116 to be at 1.0190. The British pound is then 80 pips higher at 1.5110 and the yen is at 93.38.

It wasn't any more exciting on the rates side – the 10-year yield was up 4 bps to 1.87 per cent, the 5-year is about 2 bps higher at 0.76 per cent, while the 2-year is at 0.24 per cent. Aussie futures were down 3-4 ticks to 97.27 on the 3s and 96.715 on the 10s.

So for our market today, the SPI is up 0.7 per cent so far overnight – a bit of a correction following yesterday's sell-off and the resilience we saw on markets overnight.

Macro-wise, the calendar is reasonably busy for Australia today. We've got the Reserve Bank meeting – well, the decision – at 1430 AEDT, although few expect a rate cut here. We got the last piece of evidence that pessimism on the domestic economy was wrong last week, and what with the iron ore price rebound, sharemarket rally etc., there should be a major revision of the economic view on the Reserve Bank board. Prior to that we see retail sales and the current account at 1130 AEDT.

Overseas, we can look forward to a Chinese services PMI at 1245 AEDT, while tonight the key US data release is the non-manufacturing PMI.

Hope you have a great day…

Adam Carr is a leading market economist.

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