SCOREBOARD: Crumpled Spain

European stocks ended weaker overnight after Catalonia joined two other Spanish regions in requesting access to the central government's €18 billion liquidity facility. Catalonia is the most heavily indebted region and asked for €5 billion in order to pay €5.6 billion in maturities this year.

This obviously hit sentiment, although the fall out doesn't appear too dire, which I'll be honest I'm surprised about. I saw the headlines and instantly thought there'd be carnage, but no. In fact Spain managed to sell three and six month bills at sharply lower rates than they did last month. The three month for instance was going out at a yield of 0.95 per cent from 2.43 per cent in late July. Similarly the Italians sold €3 billion, May 14 zero coupon bonds at a yield of 3.06 per cent compared to 4.86 per cent in late July.

In the secondary market yields were higher but not much. So the Spanish 10-year yield rose about 9 bps to 6.45 per cent, while the Italian equivalent was up only 6 bps to 5.72 per cent. So it was that the Dax was off 0.6 per cent, the CaC fell 0.9 per cent (as did Spain's main index) while the FTSE was flat (-0.02 per cent).

Fair to say that the shadow of Helicopter Ben probably looms large and we have the Jackson Hole Symposium over the weekend. It may be the case that no one wants to be bear-up and be caught short stocks if the fed announces an open ended QE and also declares they'll buy anything – treasuries, MBS, used cars, consumer electronics – houses! It should be noted that there is also some chatter about the significance of the ECB's announced absence from the symposium. Some have taken it to mean they are preparing something big at the September 6 meeting.

Whatever the case, and despite Catalonia's bailout, the main equity indices managed to finish mixed across the pond and while that doesn't indicate the market brushed off European concerns, the market was certainly a bit more resilient.

More to the point, stocks actually opened stronger albeit modestly, before slipping into the red after a fall in consumer confidence. That index dropped about 5 points to 60.6 in August, which is weak but then it's been weak for a very long time. In any event, a bid remerged and stocks spent much of the session just in positive territory, the (S&P500 up 0.2 per cent at the high). At the bell though, the S&P500 was off 0.1 per cent (1409), the Dow was down 0.2 per cent (13102), while the Nasdaq rose 0.2 per cent (3078).

By sector, energy and consumer stocks were the key outperformers, the former getting a boost from hurricane Isaac. Landfall is expected in the next 24 hours as a category 1 hurricane, which according to the wind scale leads to "some damage” – think roof, gutters large branches.

For comparison Katrina was a category 3 hurricane in which it is expected that ‘devastating damage will occur' - think major damage to well built homes, loss of utilities for days etc. Crude was then up 0.6 per cent in response ($96.08), while metals were weaker – gold down $6 to $ 1669, silver down 0.7 per cent and copper off 0.5 per cent.

In the forex space, the euro was about 80 pips higher or thereabouts to 1.2564 on the expectation that the ECB is planning some magic, then we saw the Australian dollar up about 20 pips to 1.0372. Sterling is then at 1.5820 and yen sits at 78.51.

On the rates side, the price action is barely worth commenting on. Moves were small and the 10-year treasury traded within a 3bps range. At the close there was little change compared to 1630 AEST and the yield settled at 1.64 per cent. The 5-year yield was then at 0.68 per cent while the 2-year was at 0.26 per cent. Australian futures in turn did little – the 3s and the 10s down 2 ticks a piece to 97.38 and 96.87 respectively.

Data otherwise was minor and mixed. So US house prices rose 0.5 per cent in June according to the S&P/case Shiller index, while the Richmond Fed index rose to -9 from -17 in August (average is 2).

The SPI suggests the Australian stock market will be quiet today, that index up only 0.1 per cent (4352). Otherwise, the calendar today shows Australian construction work done is due at 1130 AEST. This is the first business investment instalment and while it doesn't get much market attention is actually quite important. It's certainly a good feed into the upcoming GDP figures. There isn't a lot in our region otherwise, but tonight we get an update on German CPI – expected to remain above target in August (2.1 per cent year-on-year).

For the US, an update of GDP is due (expected to be revised to 1.7 per cent from 1.5 per cent) and we also get pending home sales and the beige book.

That's about the lot, have a great day…

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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