It was a bit of a mixed bag on the earnings front, but US stocks managed to push higher anyway. A part of the story was rebound. For instance, Apple helped lead tech stocks, rising 2.2 per cent, and Microsoft was up 3.6 per cent on press reports that a hedge fund took a $2 billion stake in the company.
Then commodities have bounced back some. Gold in particular is up almost $30 ($1425), taking silver with it to 1.7 per cent; while crude rose 0.9 per cent ($88.8) and certainly energy stocks were a key driver of the overall market, as were basic materials and tech stocks (gains over 1 per cent). For the benchmarks themselves, the S&P500 closed 0.5 per cent higher (1562), the Dow was up 17 points (14,564) and the Nasdaq was 0.9 per cent higher (3233).
Over in Europe there was a bit of action, though not so much on the equity side where things were subdued. The Dax was up 0.2 per cent, but the CaC and FTSE were flat. It wasn’t entirely boring I guess – Italian bond yields fell quite sharply, another 12 bps overnight to 4.05 per cent which is the lowest yield since late 2010.
The real excitement though is over this question of austerity, and sure enough there has been a lot of PR about it lately – usually against. Everyone is urging Europe to do more! And it is a divisive issue.
On one side we have the US and their mouthpiece the International Monetary Fund: they want Europe to dump austerity, and they have some support from within in the president of the European Commission, Jose Barroso, who said that the policy had reached its limits. It’s not that he doesn’t think it’s good policy – he does, but he suspects the public has reached the limit.
The Germans, and Northern Europe in general, are opposed though. They point out that the way out of a debt crisis isn’t through more debt. This is common sense stuff which the United States and International Monetary Fund and even our own Treasurer can’t grasp. I mean, imagine going to your bank manager and saying, ‘Look mate. I can’t really afford my current debt repayments at the moment. The best way forward is for you to lend me a few more million – not to invest, just to spend on stuff, and it’ll all be right, trust me maaaaaate!’
I am firmly with the Northern Europeans on this one. In fact, if you think about it, the US position and the position of Wayne Swan is not only stupid but intrinsically selfish and unjust – and is bad policy. They want to pursue current growth, through debt, at the expense of future generations.
Think about it. If the only way you can get growth is through debt, it’s not really sustainable growth, is it? I mean, we are talking about already heavily indebted countries here. Large countries which in some cases the market has already expressed concern about lending to. To say that they should take on more debt is an utterly stupid thing to say given everything we’ve been through.
Has dementia set in so soon? Pray, do tell – how are they going to fund ever rising rates of debt? Then of course assuming they can, and it doesn’t lead to another crisis, one day the bill will have to be paid. 'Mañana' is what they all lazily say. Worry about it tomorrow – let tomorrow’s generation worry about it. Get growth at all costs now, for us, now. It’s ‘brilliance’ just like that which led to the global financial crisis.
Proponents of the ‘growth at all costs’ or ‘growth through unsustainable debt levels’ point to the now discredited research of Kenneth Rogoff and Carmen Reinhart as if to prove a point. That their research was flawed is meaningless – it doesn’t change the fundamental truth that for heavily indebted countries taking on more debt is not really a sustainable option, it is dangerous and puts a country firmly on the path to crisis. R&R are only one couple, flawed, who I have criticised in the past myself.
At this point we are seeing countries getting extensions etc., and this is the likely end of all the ridiculous debate. But this isn’t necessarily a bad thing. That they fix up their books is all that matters, and if it takes one or two more years then so be it.
So, in price action elsewhere we saw the Australian dollar little changed at 1.0276, while the euro was also unchanged at 1.3067. The British pound shot up about 60 pips to 1.5291, while the yen is at 99.27. On the rates side, yields fell a bit, with the 10-year Treasury note down about 3 bps to 1.695 per cent, the 5-year at 0.69 per cent and the 2-year at 0.22 per cent.
Finally in terms of data things were light: US existing home sales fell 0.6 per cent in March after a 0.2 per cent rise, while the Chicago Fed activity index fell to -0.23 from 0.76.
Today the SPI points to a 0.3 per cent rise. Data-wise there is little for Australia – in fact, nothing really of interest. Instead we look to China and a flash estimate of the manufacturing PMI at 1145 AEST. Then this afternoon we see the European PMIs and tonight US data includes house prices, new home sales and the Richmond Fed manufacturing index.
Have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.