Scoreboard: East-West standoff

There was nothing particularly major overnight to really sway things one way or the other -- no data as such. No one key event. Instead, a number of factors conspired to see stocks weaken and the US dollar offered.

For a start, the situation in the Ukraine continues to deteriorate. That always seems to be in the backdrop now. Even so, the US and Europe seem to have no genuine interest in de-escalating things. Russia, in turn, feels that it can’t unless the West is prepared to negotiate properly, and so far it hasn’t been. The whole crisis is being guided by conceit and ego.

Stock specific factors also played their part -- Twitter slumped 18 per cent as employees became eligible to sell up to 480 million shares. That smashed the tech sector more generally and sentiment wasn’t helped after AIG reported a 27 per cent drop in profit.

Equities on both sides of the Atlantic fell hard. The S&P500 fell 0.9 per cent (1867), the Dow was 129pts lower (16401) and the Nasdaq fell 1.4 per cent. Financial and tech stocks led the way, but consumer stocks were smashed as well. Over in Europe, the Dax fell 0.7 per cent, the Cac was off 0.8 per cent and the FTS100 was 0.4 per cent lower.

Forex moves were very interesting on the Australian dollar. After the RBA’s decision yesterday, the unit spiked about 30 pips (almost) to 0.9306. Just as quickly as those gains were made, they were given back. It was very much a knee-jerk reaction as the RBA seems quite comfortable to keep rates on hold for a while yet. On the face of it, the Europeans saw things differently though and in that session the bid came on hard, strengthening as US markets opened up. It was one-way traffic and from 4.30pm (AEST), the Australian dollar is up near 70pips to 0.9357. The Australian dollar's move last night doesn’t look domestically related. Europe saw a decent spike as well yesterday afternoon, trading in a similar pattern to Australian dollar, the unit ended 50 pips higher at 1.3930. Sterling in turn was up 85 pips to 1.6975, while even the yen slipped to 101.67 from 102.03. The issue here is clearly the weaker US dollar.

Commodities were mixed and moves were generally small. Gold was basically flat at $1308 per ounce, silver rose 0.4 per cent and copper was flat as well. As for crude, Brent and WTI moved in opposite directions. WTI was up 0.3 per cent to $99.8, while Brent fell 0.4 per cent ($106.9).

Rates traded on a relatively narrow range overnight with the US 10-year yield bouncing around on 4bp. At the session end, the 10-year yield was off about 1 basis point to 2.59 per cent which is about 11 basis points lower for the week. The 5-year in turn also traded on a 4 basis point range, but ended unchanged at 1.68 per cent. The 2 year is at 0.42 per cent. Aussie futures were flat on the 3s (97.12) and up 1.5 ticks on the 10s (96.15).

Elsewhere, the US trade balance fell slightly, to $40.4bn in March from $41.9bn the month prior on the back of a $2.1bn lift in exports and a 1.1 per cent rise in imports. The IBD/TIPP Economic optimism index suggests Americans were a little gloomier in May, with the index falling from 48 to 45.8 in May. Over in Europe, the key data release was the retail sales numbers. This showed spending up 0.3 per cent in March following a 0.1 per cent lift the month prior. Also getting plenty of attention was a decent lift in the services PMIs for Italy (51.1 from 49.5) and Spain (56.5 from 54).

Markets today. The SPI suggests our stocks will follow US and European markets with a 0.5 per cent fall. Data-wise we see labour market numbers out of NZ at 8.45am (AEST), while for Australia, the key release are the retail sales numbers at 11.30 (AEST). The Chinese services PMI follows closely after at 11.45 (AEST) with German factory orders at 4pm (AEST). Tonight there is a run of data, although none is likely to be market-moving. Out of the US we see non-farm productivity and labour costs and consumer credit. The market’s focus is likely to be on the Fed chair’s testimony to the Joint Economic Committee.

Have a great day.