SCOREBOARD: Data recovery

Europe may be at the precipice of a recession and threatening the world with a credit crunch, but across the Atlantic, things are actually picking up. Well, that is if the US Congress can pass another temporary funding bill which expires tonight, so avoiding a government shutdown. In the interim, jobless claims fell to 366,000 in the week to December 10, which is the lowest number of claims since May 2008.

The numbers bounce around a bit, but since early November claims have been sitting below the 400,000 mark, which bodes well. As does commentary from the National Retail Federation that consumer spending over the holiday season is likely to be stronger than expected in October. They increased their forecast of holiday spending to 3.8 per cent on the back of strong November sales, from 2.8 per cent previously, which is above the decade average of 2.6 per cent. Added to that we saw a decent bounce in both the Philly Fed index (to 10.3 from 3.6, decade average of 5) and Empire State index (to 9.5 from 0.6 and a decade average of 9.8). About the only downside was a weaker industrial production report, down 0.2 per cent ( 0.1 per cent expected), but given that follows solid growth in October ( 0.7 per cent) and we saw upgrades to August and September data, it isn't necessarily signalling trouble.

It was this data that drove a modest risk bid last night – well in the equity space at least, where the Dax finished up almost 1 per cent, the CaC was 0.8 per cent higher and the FTSE was 0.6 per cent higher. On Wall Street, the S&P 500 lifted 1.1 per cent at the high, but eased off a bit and closed only 0.3 per cent higher (1,216) – driven by utilities, healthcare and consumer goods. The Dow for its part was 45 points higher (11,869), the Nasdaq gained 0.07 per cent (2,541) while Australia's SPI is up 0.3 per cent (4,129).

Can't say the optimism really flowed through to commodities though, and that's with a weaker USD – the Australian dollar gained 50 pips to 0.9936, the euro lifted 20 pips or so to 1.3014, sterling added 70 pips and the yen was little changed at 77.86. As I write, only silver is higher ( 1.2 per cent) while nearly everything else is little changed. Gold is at $1566, copper is also flat while crude is off 1.1 per cent on WTI ($94.38) and flat on Brent ($105.02).

In the debt space, the good news was the sharp drop in Spanish and Italian yields overnight, driven by a decent auction of Spanish debt. The 2016 bond was taken up at a yield of 4.023 per cent, down sharply from 5.276 per cent last time, with cover at 2 (2.8 last time). The 2020 bond in contrast had a higher yield (5.2 per cent from 5 per cent last time) and lower cover (1.5 from 2 previously), while the 2021 bond saw cover of 2.2 (from 1.8 in October) and a yield of 5.54 per cent from 5.43 per cent last time. The Spanish 2-year dropped to 3.635 per cent from 4.07 per cent and the 10-year was down about 25bps to 5.43 per cent.

Treasuries in contrast sold off but moves were reasonably small – the 2-year at 0.24 per cent, the 5-year up just over 1bp to 0.85 per cent and the 10-year yield just under 4bps higher to 1.92 per cent (8bps range). Australian futures were off 3-5 ticks, the 3s at 97.02 and the 10s at 96.18 with a bit more sell flow in the 10s.

Bit and pieces otherwise. European news flow was anything but inspiring. The head of the French central bank and ECB member, Noyer, suggested that decisions from the ratings agencies were political and suggested they were increasingly driving the eurozone crisis. He went on to suggest that the UK should be downgraded before France "which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping."

In terms of the data, US producer prices rose by 0.3 per cent (0.2 per cent expected) to be 5.7 per cent higher annually. Core was up 0.1 per cent month-on-month and 2.9 per cent year-on-year. Then the current account narrowed to $110.3 billion in the third quarter from $124.7 billion as exports rose 5.6 per cent and imports fell 1.1 per cent (price induced fall). In Europe, CPI was steady at 3.0 per cent year-on-year in November, the PMIs edged up slightly such that the composite index rose to 47.9 from 47, while employment fell 0.1 per cent in the third quarter. In the UK, retail sales fell 0.7 per cent in November, after an upwardly revised 0.9 per cent gain in October (was 0.6 per cent).

There is very little in the way of data in Australia today. Not much for the region more generally so tonight just watch out for US CPI and a bit of Fed commentary from Evans (dissenter for more stimulus) and Fisher.

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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