SCOREBOARD: Euro amour

European markets gained overnight as fears of a eurozone break-up continued to subside.

Stocks in Europe pushed higher overnight and the effort was reasonable, with the Dax up 0.8 per cent, the CaC up 0.9 per cent and the FTSE 0.6 per cent higher.

Across the pond though, Wall Street was having none of it. Okay, that's not entirely true as US indices did push higher initially, briefly breaking through 1426 on the S&P which was the highest point since May 2008. The offer came on and hard then – a key psychological or resistance level, whatever you want to call it – but the index fell about 14 points or 1 per cent in subsequent trading despite no real news or data flow to guide the action. At the close, the S&P 500 fell 0.4 per cent (1413), the Dow was off 0.5 per cent (13202) and the Nasdaq was off 0.3 per cent (3066).

European markets still seem to be celebrating the fact that maybe, just maybe, the eurozone isn’t going to break up. Indeed you can see the degree to which punters are becoming more comfortable with reality when you see some of the price action for European banks overnight.

So the National Bank of Greece was up 6 per cent or so (the main index up 2.7 per cent), some Italian banks were up 7 per cent with their French and German counterparts up around the 4-5 per cent (that’s the leaders). Supporting this optimism, Spain managed to raise some cash at cheaper rates than last month, the 12-month bill yield falling to 3.07 per cent from 3.92 per cent last month, while the 18-month yield was down 110 bps to 4.24 per cent.

Then in the 10-year space we saw some broad based declines (in yield) for the distressed nations. Ireland’s 10-year bond fell below 6 per cent for the first time since 2010, Portugal’s equivalent is now down to pre-bailout rates (May 2011) although they remain very high at over 9 per cent. Then for Spain and Italy, 10-year yields were down 7 bps and 11 bps respectively to 6.19 per cent and 5.55 per cent.

It’s all about whether the ECB will cap yields for Spain and Italy, or not. And I don’t think the issue is settled. Apparently a German central bank member said he was in favour and the consensus seems to be that while the ECB expressed some annoyance over the issue appearing in the press, it probably is being discussed at least as a possible option.

Anyway, while US equities did their own thing, commodity markets bathed in some European love and there were some solid moves. Copper for instance was up over 2 per cent as was silver and gold saw $15.8 added on ($1638). Crude was then up 0.6 per cent on WI to sit at $96.56.

For the FX market we saw AUD ease off slightly from 1630 AEST having hit a high of 1.0519. As I write, the unit sits at 1.0480. The euro was up about a big figure to be at 1.2465, while sterling is at 1.5779 ( 35 pips) and Yen at 79.26.

Finally on the rates side, US Treasuries followed the equity action, selling off as stocks were bid and reversing course when the offer came on. So after hitting a high yield of 1.86 per cent, the US 10-year ended the session at 1.80 per cent (down 1 bp or so from 1630 AEST). Otherwise the 5-year ended little changed at 0.79 per cent and the 2-year ended at 0.29 per cent. Australian futures were up a tick or two each with the 3s at 97.17 and the 10s at 96.645.

Today looks like it will be quiet for the Australian market, the SPI was off 2 points only (4373 or about 0.04 per cent) and apart from Japanese trade figures this morning, the calendar reveals there is little to digest in the way of data in our region.

There is some very minor data Australian data today – leading index and skilled vacancies – but that’s it. Tonight we see existing home sales for the US and the FOMC minutes to the August 11 meeting.

That’s about it, so 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.

@AdamCarrEcon on Twitter.

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