SCOREBOARD: Euro afterglow

European markets were still on a high over recent comments from eurozone leaders, but the effect waned for US stocks.

European banks, still bathing in the afterglow of recent policy rhetoric, helped stocks on the continent push higher overnight. The major indices all closed over 1 per cent, with the Dax 1.3 per cent, the CaC 1.2 per cent and the FTSE also 1.2 per cent higher, although some of the large European banks outperformed that – Deutsche Bank up 2 per cent for instance and credit Agricole plus 7 per cent.

A successful auction of Italian debt would have aided the bid no doubt, the auction providing the government with an additional €5.48 billion in cash. The good news is that the 10-year bonds went out at a yield of 5.96 per cent which although still high, is down from June’s auction where they attracted a yield of 6.19 per cent. Bid to cover was at 1.29 compared to 1.28 previously. In the secondary market Spain’s 10-year then fell about 16bps to 6.58 per cent.

Over on Wall Street that positive sentiment didn’t last long, and in fact it probably didn’t even really gain any traction. The S&P for instance was only up 0.4 per cent at the high before the offer came on. This saw the market about-face to be 0.4 per cent lower at the trough. I suspect most market punters are unwilling to take the rally further when you’ve got such a massive run of data plus the possibility of disappointment from the ECB – and maybe even the Fed in this environment. You know the story – "they failed to signal QE3” etc – risk off. In the end, the S&P managed to finish flat on low volumes, (-0.05 per cent to 1385.3), which was the same story for the Dow (-0.02 per cent to 13073). The Nasdaq underperformed, finished 0.5 per cent lower (2944), while our SPI suggests the Aussie market will also be flat roughly with a modest gain of 0.1 per cent (4216).

There was more action in some of the commodity markets and in particular gas futures which rose almost 7 per cent to a 2012 high. Also posting solid gains were corn, which rose 2.5 per cent, wheat up over 1 per cent and then in the metals space, silver, which was 2.3 per cent higher. Gold was otherwise up smalls ($US1621) and copper was virtually flat. As for crude, we saw a 0.6 per cent fall overnight to $US89.5.

Not much action in the forex or bond market space given the huge run of data and those ECB and Fed meetings. The Australian dollar did manage to see some more love but, breaking through 1.05 ( 35 pips) to still be hovering at that level, having hit a high of 1.05077. Conversely the euro fell 30 pips to 1.2263. Sterling then rose about 20 pips to 1.5714, while the yen is at 78.165. On the rates side, US Treasuries rallied with the yield on the 10-year down 6bps to 1.5 per cent, while the 5-year yield was 4bps lower to 0.62 per cent. The 2-year is at 0.23 per cent. Aussie futures have been bouncing around a bit of late and last night ended about 5 ticks higher a piece with the 3s at 97.51 and the 10s at 97.025.

In terms of the data or other news there really wasn’t very much. The eurozone business climate indicator fell from -095 to -1.2 and in the US the Dallas Fed manufacturing survey fell from 5.8 in June to -13.2 in July. US Treasury Secretary Geithner and the German finance minister then continued the barrage of political rhetoric we’ve seen. They both expressed confidence that the eurozone would carry out needed reforms etc. Finally the Greek government hasn’t quite reached agreement over any new austerity measures, but the press is reporting that they will still seek an extension, of about two years. Talks with the troika are apparently going well and a broad agreement over cuts and the like has been made.

Data for Australia today includes private sector credit at 1130. Credit growth has been down near recessionary levels for some time, given that property has lost the lustre it once had. Not for long I might add. Another modest increase of 0.4 per cent is expected. Building approvals are at the same time and the consensus forecast is that approvals will fall by 15 per cent following a 27 per cent increase in May.

Global data includes German retail sales this afternoon, soon followed by unemployment figures and European inflation numbers. For the US, the major data includes personal income and spending for June and don’t forget the PCE deflator. Otherwise there are a few other data points as well like the Chicago PMI and consumer confidence (for August).

Have a good one...

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

@AdamCarrEcon on Twitter.

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