SCOREBOARD: European bother

A series of bleak headlines saw European markets take a minor beating overnight, although truth be told, the news flow wasn't all bad.

So the Dax ended 0.5 per cent lower, the CaC lost 0.9 per cent, and the FTSE declined 0.2 per cent. It started when the German IFO survey was released. All the commentary I've read so far has been on the hysterical side – and the twitterati were out of control.

Now the numbers were weaker, this is true, but barely. Check it out – the business climate index went from 102.3 in August to 101.4 in September – the fifth consecutive decline.

Whoa!! death and destruction.

What hysterical alarmists seem to have forgotten (or never knew as is more likely) is that this is still above average. Only just, but it is above average at a time of European debt concern and recession etc etc.
This is a great outcome – and that is the key take from this data. Certainly the expectations component remains below average at 93.2 (average 100) but with everything going on that isn't unexpected. Of course people are concerned about the future. But when asked about current conditions, German business report that things are well above average – the index at 110.3 (down from 111 in August) which compares favourably to the average of 102.

All of that was overlooked however and the offer was on, not helped by the ongoing problems in Spain and press reports suggesting Europe's leaders are confused about their next move. I don't think they are confused – although reports that Europe's bailout fund would be geared up to the tune of €2 trillion have been officially denied.

There also seems to be disagreement, as you would expect, about how, when and if a banking union is to be set up. Anyway, back to Spain, apparently the largest autonomous region, Catalonia, wants independence unless Madrid can renegotiate the fiscal agreement between the region and the central government.

That was all sufficient to see US stocks open weaker, the S&P500 hitting a low soon after, although losses were trimmed going into the close. At that point the index was down 0.2 per cent (1456), ditto the Dow (13558). The Nasdaq managed to underperform all of that finishing 0.6 per cent weaker, I guess as sentiment toward the tech sector soured following disappointing iPhone 5 sales.

There wasn't really much more to the session to be honest. Commodities were mixed with crude up 0.3 per cent ($92.14), copper fell 1.2 per cent and gold was down $11 to $1766).

On the forex front there wasn't a lot of action – the Australian dollar is up smalls to 1.0429, while the euro is down smalls to 1.2930. Otherwise there was nothing of note on the rates side, yields lower by one or three basis points (2-year at 0.26 per cent, 5-year at 0.65 per cent and 10-year at 1.71 per cent).

Bits and pieces otherwise. In terms of US data there were two comparatively minor data releases, the Dallas Fed manufacturing index and the Chicago Fed manufacturing index, one improved, one deteriorated, both are negative.

Similarly, looking at the day ahead there is little of interest. The SPI suggests it'll be a very quiet day, that index down 3 points to 4395. Australian debt futures did little as well, up 2 to 3 ticks to 97.49 and 96.90 on the 3s and the 10s respectively.

So tonight it's worth watching out for US house prices, consumer confidence and the Richmond Fed manufacturing index. Not much else.

That's about the lot, 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.

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