SCOREBOARD: Crude knock

Crude prices took a heavy hit overnight, with speculation rife that high frequency trading was responsible.

In the space of a few minutes, in what is being touted as a ‘fat finger’ error or some computer malfunction, crude prices fell over 3 per cent – the biggest fall in eight weeks – on a rapid surge in trading volumes. Either way high frequency trading looks to have been the culprit so whether it was a fat finger error or what, remains to be seen.

Crude prices barely recovered though and finished just over $2 lower or 2.3 per cent lower at $96.01 and this was due to subsequent rumours – probably out of political offices in the UK and US – that oil may be released from the strategic petroleum reserve. Metals otherwise were mixed, with copper up 1.2 per cent although gold fell about $11 to $1761.

Events in the crude space look to have hit risk more generally last night, although prior to the "fat finger error’ it’s not like stocks had a big bid or anything. In fact the S&P500 was bouncing around zero just prior, the offer really only coming on in force once crude fell. Energy stocks obviously led the decline and at the close, the S&P500 was off -0.3 per cent (1461).

The Dow was also 0.3 per cent lower (13553) with the Nasdaq down 0.2 per cent (3178). There’s not much else really to say – in Europe stocks were all weaker as well although there was no major news on that front – nothing new that is.

Most of the news flow was concerned with European leaders failing to agree to a timetable for a banking union – there are disagreements over the terms of bailout requests, Spain doesn’t want to make any more cuts and I’m sure there is some court challenge going on or being planned somewhere. So the Dax was off 0.1 per cent, the CaC fell 0.8 per cent and the FTSE was 0.4 per cent lower. The SPI for its part was flat at 4398.

In the forex space, the Australian dollar followed risk sentiment and eased off about 50 pips to 1.0477 although the euro was barely changed, down 15 pips to 1.3118. Sterling was otherwise 30 pips higher at 1.6252 while Yen is at 78.70.

On the rates side we saw a modest bid for most of the session and yields were lower. The US 10-year treasury yields sits at 1.84 per cent (1.82 per cent at the low) which is about 3 bps or so lower than at 1630 AEST yesterday. The 5-year was actually a couple of bps higher at 0.72 per cent, while the 2-year sits at 0.26 per cent. Australian futures were up 3 to 4 ticks on the 3s (97.31) and the 10s (96.700).

Bits and pieces otherwise. In terms of the data we saw the US Empire State manufacturing index drop to -10 in September from -5. In Europe, the Italian trade surplus surged to its highest in 14 years as exports rose 4.3 per cent in July with imports falling about that amount. For Europe as a whole, the trade surplus was €3.1 billion in the month with exports down 1.7 per cent and imports down 1.3 per cent.

We should note those strong Australian motor vehicle sales yesterday. They rose 3.6 per cent in August to a new record – with both passenger vehicle sales and SUV sales surging in the month.

SUV sales in particular are strong given the changing preferences of consumers to own tanks. Parking is certainly getting harder that’s for sure. The usual suspects are out and about trying to tell you this strength is temporary – tax breaks for businesses or whatever and it’s true to say that spending on utility vehicles and the like is very strong (18 per cent year-on-year).

But this overlooks strong consumer spending on cars. Strong car sales were meant to be temporary last year and the year before that as well if you recall. Fact is, yesterday’s numbers confirm that consumer spending is strong and it highlights why the broader economy is strong as well.

Looking at the day ahead we get the RBA’s minutes at 1130 AEST and I’ll be looking to see if there are any further clues as to the extent of their dovishness.

This evening we see UK consumer prices although the BoE has very clearly abandoned its inflation target so it’s not that important in terms of policy. Very important for investors however. Recall that inflation has been well above target for years. Following soon after we see the German ZEW survey and then for the US we see the second quarter current account and NAHB housing market index.

That’s about it, so hope you have a good one…

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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@AdamCarrEcon on Twitter.

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