SCOREBOARD: Crude reality

The fiscal cliff continued to drive US markets, while key commodities fell despite good news on US oil.

Not a lot in this session given the Veteran’s Day Holiday. Bond markets were closed and stocks bounced around zero (on light volumes) – key commodities fell just through. Certainly there was no real change to the market drivers – the fiscal cliff! On that front the meetings continue and the latest I’ve heard is that Republicans are softening their tone on increases in tax revenues forming part of the deficit reduction plan. As long as tax rates aren’t increased.

Otherwise, one of the more interesting tidbits to come out of last night was a report released by the IEA predicting the US would be the world’s top oil producer in about seven years’ time – 2020. The shale boom. The crude market took it in its stride though, WTI down smalls (0.5 per cent to $85.6) at the time of writing. Otherwise we saw gold down a few bucks ($1727), while copper rose 0.8 per cent. Outside of that there wasn’t a lot of news flow and as I write, the S&P500 is 0.1 per cent higher (1380), the Dow is 18 points higher (12834), while the Nasdaq is 0.2 per cent higher (2909).

Over in Europe, everyone is concerned about Greece again and we saw Spanish and Italian bond yields pushed higher as a result – the 10-year yield up 5 basis points to 5.87 per cent for Spain and the Italian equivalent was 7bps higher (4.96 per cent). The situation seems ridiculous to be honest – the Greek parliament passed the reform measures and passed the budget – the only hold up now comes from the actual lenders. Here’s the rub though. The IMF reckons Greece can’t return to sustainable debt levels unless eurozone lenders write down their debt holdings, but at the same time, giving the Greeks a two year extension (which the Greeks say they need) will require €15 billion in financing over two years (without the extension the Greeks would have needed €6 billion over the next two years) or €33 billion over four (according to a draft report on Greece by debt inspectors). The best case scenario according to the IMF, is that the Greeks achieve a debt to GDP of 140 per cent by 2020 – 120 per cent is seen as sustainable.

So European lenders need to write down what they’ve given and then give more. Eurozone leaders see this as a problem. While Spanish and Italian bond yields pushed higher, the euro didn’t seem to react too much and is off smalls (1.2712). Indeed stocks were mixed with the Dax up 0.1 per cent and the CaC off 0.4 per cent while the FTSE100 fell 0.04 per cent.

There were a few other interesting bits and pieces. On the data front, Japanese GDP figures out yesterday showed the economy contracted 3.5 per cent in Q3 – the biggest fall since the tsunami hit in 2011. Its economy minister said that another recessionary phase can’t be ruled out. That said it does follow strong growth earlier in the year and so volatility makes it hard to get an accurate read. In any case, the BoJ will likely print many more trillions of yen and the government is talking about a new stimulus package – funded by the BoJ printing trillions of more yen. In other news and in another very positive development for market transparency and efficiency, an Italian prosecutor filed charges of market manipulation against Standard and Poor’s and Fitch.

For the Australian market today there isn’t a lot. Futures suggest it will be quiet and the SPI is up 3 points (4460) while debt futures have done little – 3s at 97.46 and 10s at 97.020. The calendar today shows that NAB releases its October business confidence report (1130 AEDT). Confidence and reported conditions are weak and it’s not clear with the current economic debate what will change that. The official cash rate has been at crisis levels for some time. Outside of the Australian data there isn’t much to watch. Tonight we get UK consumer prices, all but irrelevant given the BoE has abandoned its inflation target, and the German Zew survey. US data includes the NFIB Small Business optimism survey and the monthly budget data.

That’s the lot, hope you have a great day…

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