SCOREBOARD: Crude shock

The big news overnight was the decision by the International Energy Agency to release oil from strategic reserves. While only about 2 million barrels per day are set for release, for 30 days, it's a big statement, as the IEA's reserves have only been tapped twice before – during the 1991 gulf war and after hurricane Katrina. Notionally, the move is to make up for supply disruptions from Libya and to ensure the market is well supplied going into the northern summer (when people drive and use lots of oil apparently). That said, with oil stocks at fairly comfortable levels, it's not immediately clear that the market actually needs the oil. It does show two things though. Firstly, that the OECD will take steps where OPEC fails to lift production and, secondly, that governments are willing to target speculators. This is going to make for some extremely interesting times as the IEA has 4.1 billion barrels of oil in its armoury, or about 146 days worth.

Crude was down sharply as a result (Brent fell 7 per cent at the low, WTI 4.5 per cent) and has barely recovered from that – Brent down 5.5 per cent ($107.9) and WTI down 3.9 per cent ($91.66). Nevertheless, this move provided little relief for equity punters, which I am surprised about (outside of energy stocks obviously) as I would have thought cheaper oil would have been a key positive for growth. Not so it would seem and, just as oil was hitting its lows, equities were hitting theirs – the S&P500 was down 1.8 per cent at this point.

This was, in part, due to a run of weaker data, which in this environment has sparked headlines suggesting that global manufacturing is faltering etc etc. People are 'beared' up that's for sure but, in actual fact, the economic data suggests no such thing. Take the eurozone PMIs. Now these did fall – the composite index to 53.6 from 55.8 (at a 20-month low) and the manufacturing index at 52 from 54.6 (a 21-month low). That said, both remain above average and still suggest a decent expansion was underway in the second quarter. All the eurozone PMIs suggest is that growth has moderated from very strong rates in the first quarter, to something more average in the second. No need to hit the panic button over that I would have thought. Remember what I said yesterday about the usual quarterly fluctuations in growth not indicating a rapid change in economic conditions.

Then in the US, the dataflow was also negative – jobless claims rose 9,000 to 429,000 and new home sales fell 2.1 per cent in May. Now obviously falling claims are better than rising claims, but the issue is to what extent claims, at 429,000, suggest the labour market has frozen (as the headlines suggest). The evidence shows that jobs growth can still be quite robust with claims hovering around current levels. Indeed, for much of the year so far claims haven't been that much lower at 414,000, while jobs for their part have increased by almost 1 million. In April, when claims averaged 432,000, 251,000 private sector jobs were created.

I think the bigger problem is that many people in the market have what one US economist has termed "Woody Allen Syndrome”. I love it, and it got lots of press yesterday for good reason. But, while he was talking specifically about New Zealand, I think the sad fact is it is a much more accurate descriptor of the global market, especially market commentators in Australia. The sad fact is that many people in Australia are at the neurotic and depressed end of the spectrum as are many Woody Allen characters, "convinced that the future looks bleak”.

People have it so badly in Australia that analysts regularly refer to consumer spending as weak, despite data showing this is false, and we are further told that consumers lack confidence – again demonstrably untrue. As I've pointed out before, one of the best examples of neurotic analysis concerns the tourism sector. It's being smashed by the high Australian dollar apparently, although that kind of overlooks the fact that tourist inflows to Australia are just under a record. Growth in tourist outflows, while very strong, was actually stronger in 2003/04 when the Australian dollar was 60-70 cents. The number of Australians travelling overseas is strong – it's at a record but this is a trend that has been developing for the best part of a decade and that's despite periods when the dollar has been weak. More likely it has to do with competition in the airline space (brining prices down sharply) and the growing wealth of Australians in general. It never ceases to amaze me that how it is lost on people that a record number of Aussies taking overseas holidays suggests that consumer confidence is anything but fragile. That's Woody Allen syndrome for sure, when people still think something is bleak, or fragile or weak – and that's despite clear evidence to the contrary; can you believe it? I have never seen anything like it. Truly. But it does open up opportunities to make a lot of money and I'll spend a bit of time on that next week.

But, back to last night's events – so equities were belted after the softer data only recovering somewhat after some news out of Greece that the Greek government has reached agreement with the EU and IMF over a 5-year austerity plan. At the close on Wall Street, the S&P500 was down 0.3 per cent (1,283), with energy, financials, and utilities the key underperformers. The Dow was then off 0.5 per cent (12,050), while the Nasdaq rose 0.7 per cent (2,686). The SPI for its part was flat (4,488). Commodities elsewhere were generally softer as well with gold down $24 ($1,521), copper down 1.2 per cent and softs were generally weaker. Finally in the Treasury space, the major T-notes rallied hard, the yields on the 2, 5 and 10-year down 3bps, 7bps and 6bps to 0.34 per cent, 1.46 per cent and 2.9 per cent.

That's about it really, not much out today. For Australia we get an RBA speaker (Assistant Governor of Economics on inflation) at 1245 AEST. Tonight watch out for the German IFO survey and US GDP revisions.

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