Scoreboard: European blues

Good economic news on both side of the Atlantic coulda and shoulda had a much bigger impact on the markets overnight, and in particular I’m surprised about the weakness in Europe. Stocks there were down about 1 per cent on the Dax, down 0.2 per cent on the CaC and down 0.5 per cent on the FTSE, but I would have thought there would at least be a plus sign in front of all of those.

Why? Well, UK GDP rose 0.6 per cent in the June quarter – okay, so that was expected, but for the first time in three years we saw all the main UK industries show growth. First they revise away tier second or third recession – or whatever it was – and now this? Wow. That it comes after growth of 0.3 per cent in the March quarter means that it’s the first time the UK economy has seen back-to-back growth in about two years.

Austerity does work, people – which kinda makes sense, right? I know there are some strange economic views that the best way to reduce excessive debt is by, errrmm, taking on more debt – but I’ll leave that to mathematicians to decide. That’s economics for you, though.

Right – the other good news came from Deutschland, and in particular the IFO survey. This is by far the best leading indicator for that country and it’s showing the business climate continues to improve, with the index rising to 106.2 in July from 105.9 (the average is 103). I guess there was some negative corporate news (earnings), especially in the telecoms and chemicals space, and this outweighed the good economic news.

Over on Wall Street, stocks still aren’t doing very much. The S&P500 was up 0.23 per cent, (1690) and the Dow was flat (15,555), although the Nasdaq rose 0.7 per cent to 3605 on the back of a 28 per cent spike on Facebook after it reported a surge in earnings yesterday. (For interest, Amazon reported a fall in earnings, although revenues were up 22 per cent.)

Again though the economic data was great – durable goods spiked another 4.2 per cent in June after a 5 per cent increase in May. A lot of that was transport though, which is volatile, but even if you take that out and focus on core orders, these were up another 0.7 per cent, which is the fourth consecutive monthly gain. Similarly jobless claims remain low and, notwithstanding a 7000 increase to 343,000 in the week to July 19, signal further strong jobs gains in coming months.

Elsewhere for the price action, crude rose 0.2 per cent to $105.6, copper was 0.3 per cent higher while gold put on $14.5 to $133, although much of that seems due to US dollar weakness. For last night’s session the Australian dollar was up a big figure to 0.9254, the euro rose 75 pips to 1.3280, the British pound was about 40 pips higher to 1.5390 and the yen is at 99.2 from 99.9. Otherwise, the US 10-year bond yield slipped to 2.58 per cent from 2.6 per cent.

In other news, China has apparently ordered 1400 companies to cut excess production in areas such as cement, copper smelting and steel. Over in Europe, Spain’s unemployment rate fell to 26.26 per cent from 27.16 per cent, with the number of jobs rising by 225,000 in the June quarter. The fall in the unemployment rate is the first in two years and follows comments from the Bank of Spain that the economy is close to a recovery. Still in Europe, the Greek parliament passed necessary reform measures to get the next tranche of aid monies from Europe.  

For our market today, the SPI suggests there won’t be a lot of action (flat effectively), and in terms of data it’s very quiet as well. This morning we see Japanese inflation figures and then Chinese business sentiment indicator (Chinese industrial profits are expected over the weekend). Otherwise there isn’t much else – German import prices and the final July estimate of consumer confidence from the University of Michigan.

Have a great weekend.