We didn’t miss out on any major excitement on Friday night. The US treasury curve flattened a bit as the 10-year yield dropped about 5 basis points (2.23 per cent) and the 2-year was off 1 basis point (0.35 per cent). Aussie futures in turn are little changed from Friday afternoon (the 3s at 96.33 and the 10s up 2 ticks to 95.78).
The mood was a little different in the commodity and equity space however, commodities in particular putting in a decent performance as crude jumped 1.4 per cent on WTI ($106.8) and Brent rose 1.6 per cent ($125.1) – all on news that Iranian oil exports would drop by 300,000 barrels a day this month. But we also saw some decent gains in the metal space and gold rose $18 ($1661), copper rose 1.1 per cent and silver put on almost 3 per cent. Some of it was due to the weaker US dollar, the dollar index down 0.5 per cent, but there wasn’t really a lot else to drive it that I could see. More broadly, and I think this was evident in price action for the week as a whole, investors seem to be just sitting on the sidelines, waiting for a little more direction on the macro front. For instance most commodities are down smalls for the week, ditto equities, although US stocks saw a modest bid Friday night – the S&P up 0.3 per cent to 1397, the Dow rose about the same (13080) and the Nasdaq rose 0.2 per cent (3067 and up 0.4 per cent for the week).
The thing is while risk trades have had a good run so far this year, some policymakers don’t appear to be really buying into it. Bernanke in particular has been playing things down with his comments on the softness of household spending and other Fed speakers have raised doubts about the apparent health of the labour market recovery. The debate on this front is whether the drop in participation reflects structural changes (baby boomers retiring, etc), or whether it is a discouraged worker effect. We didn’t see anything added to that at the Fed’s Central Banking Conference over the weekend, but certainly both doves and hawks have been vocal in stating their respective view. On the more hawkish side, St Louis Fed President (Bullard, non-voter) said that "some of the further actions that could be undertaken at this juncture would have effects far into the future, in an environment of continual improvement and repair for the US economy...over committing to the ultra-easy policy could well have detrimental consequences for the US and by extension, the global economy". This is something the Bundesbank is also concerned about but at the same time policymakers suggest we’re not out of the woods (regarding Europe). So we saw the Italian Prime Minister warn about the contagion risks from Spain and he said they needed to do more to bring the budget deficit in. The market is uncertain at this point where we go from here.
Unfortunately we probably won’t learn a great deal this week either. The data flow is very light and what is out, with a couple of exceptions, is generally lower tier. In the US for instance we see pending home sales (February) tonight, consumer confidence tomorrow night (for March) and durable goods on Wednesday night (for February). We see the final estimate of fourth quarter GDP (expected unchanged at 3 per cent) on Thursday and personal income and spending (for February) follows on Friday – but that’s largely it really. Maybe few manufacturing indexes (like the Dallas Fed index tonight, Richmond Fed index tomorrow) and a run of Fed speak. In Europe we get the German IFO survey tonight which is a pretty decent indicator and of course we see the EU Finance Ministers on Friday, where they intend to discuss Europe’s bailout mechanism. The wide expectation is that an agreement to combine the EFSF (due to expire next year) and ESM will be reached, which should give a combined fund of around €700 billion. In between that, it’s worth watching out for German CPI on Wednesday (for March), German employment on Thursday and European inflation on Friday night.
For Australia there a few bits and pieces – we get the RBA’s Financial Stability Review on Wednesday at 1130 AEDT, job vacancies on Thursday at the same time and then the RBA’s estimate of private sector credit growth on Friday (1130). RP Data- Rismark’s house price series is also due on Friday (1000). Finally for New Zealand, we see the trade balance today at 0845 AEDT, the NBNZ business confidence report on Thursday at 1100 AEDT and building permits on Friday (0845 AEDT).
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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