SCOREBOARD: European apathy

It was a pretty quiet session all up, with nothing in the way of major news or data flow. In Europe, we saw some lower tier data in the way of the PMIs. These were generally weaker than expected in February, with the composite index falling to 49.7 from 50.4, although the manufacturing index rose slightly (49 from 48.8).

That data may not have been important enough to see European equities sell off overnight (especially with other data out showing industrial orders rose 1.9 per cent in December), but it certainly didn't help, and they certainly did sell off. The Dax fell 0.9 per cent, the CaC fell 0.5 per cent, while the FTSE was 0.2 per cent lower. The euro was modestly stronger however, up smalls to 1.3244 on a 55 pips range.

US stocks then sold off at the open and were down 0.5 per cent (on the S&P) at the low. They've bounced back a bit since then but still sit 0.3 per cent (1358) lower as I write. Financials, consumer services and technology stocks are the hardest hit so far, with energy and utilities posting modest gains. The Dow is otherwise off 26 points (12938) and the Nasdaq is 0.5 per cent lower (2933), while our very own SPI is down 0.2 per cent (4265).

As for treasuries, they pushed a bit higher, aided by pretty decent demand at the $35 billion 5-year auction. The auction stopped at 0.900 per cent, with cover at 2.89 in line with the average. From there the yield declined and from 1630, the 5-year yield is down some 6 basis points to 0.857 per cent. the 10-year is then 3 basis points lower at 2.03 per cent, while the 2-year did little and sits at 0.293 per cent. Aussie futures are about 4-5 ticks higher on the 3s (96.35) and the 10s (95.895).

Finally for the price action, the Australian dollar is modestly lower (33 basis points to $US1.0640), although we saw some decent moves on sterling (down 120 pips to 1.5673) after the BoE's minutes. The minutes show two committee members (Posen and Miles) argued for more stimulus, although the majority said that a larger increase "risked sending a signal that the committee thought the economic situation was weaker than it was”. In the commodity space we saw gold rise $22 to $1778, silver fell 0.25 per cent, copper was flat. Crude was then mixed with WTI off 0.1 per cent to $106.15, while Brent rose 1.1 per cent to $123.

Nothing much is due out in Australia today. We get the second instalment of wages data for the quarter with average weekly earnings at 1130 AEDT. Recall wage price data yesterday is the better measure of overall wage inflation but today's measure is a better measure of what consumers have in their pocket. Wage price data yesterday showed an acceleration in fourth quarter wage pressure, although wages remain well below the worry range for the RBA – 4.5 to five per cent. Outside of that, there isn't a great deal. Look out for the German IFO survey at 2000 (AEDT) and then initial jobless claims for the US tonight. That's about it though.

For the benefit of clients abroad, we've seen some developments on the domestic political front with Australia's foreign minister resigning last night. He cited a lack of prime ministerial support in fending off vitriolic attacks against him. Indeed following his resignation, the Treasurer launched a very personal attack on the foreign minister. More broadly, speculation had been mounting that the foreign minister would challenge the prime minster for the leadership and many see his resignation as a step in that process. The prime minister is widely expected to call a leadership ballot today, for when parliament resumes on Monday.

It's difficult to gauge the likelihood of success for any challenge, with supporters on both sides claiming they have the numbers. The key issue for the ALP and the reason why the foreign minister may challenge, is the government's very poor polling results. At the 2010 election, the ALP won only 38 per cent of the primary vote, while the Coalition won 43.6 per cent, but still managed to from a minority government with help from independents and the Greens. The consensus view is that the current prime minister has very little chance of success at the next election, with polls suggesting the government's primary vote has plummeted to only 30 per cent. Consequently, pressure has been building within the party to replace the prime minister, to rebuild the government's standing rather than face what is certain electoral defeat. Stay tuned.

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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