SCOREBOARD: European cool

Spanish and Italian bonds held steady despite denials Europe is preparing to cap yields on debt-wracked countries.

Apart from Apple becoming the most valuable company in history, its market cap now at a new record, there wasn’t much market movement last night. Trading was thin and magnitudes generally quite small.

One of the key news items was a denial by the ECB and the German government that Europe was preparing to cap yields on Spanish and Italian debt. There had been speculation this was imminent after a press article appeared over the weekend suggesting this to be the case. That the ECB has acted aggressively to dismiss the rumours doesn’t necessarily mean it won’t happen at some point though. At least that’s my read of it, because they didn’t actually say it wouldn’t happen, just that it hadn’t been discussed by the governing council.

Here’s what the bank said: "It was absolutely misleading to report on decisions which have not yet been taken and also on individual views, which have not yet been discussed by the ECB’s governing council.”

That Spanish and Italian bonds didn’t shoot up perhaps shows the market isn’t too concerned at this stage. Or that people are on holiday. The fact is, markets are still in a major lull and so the Spanish 10-year yield actually managed to fall a bit, down about 7 bps or so to 6.26 per cent, while the Italian yield was up a bp or two to 5.68 per cent.

Similarly the euro (on a 70 pip range) was little changed at the time of writing (from 1630 AEST) at 1.2346. As for stocks, they were down but not by much. The Dax for instance barely moved -0.1 per cent, same with the CaC (-0.2 per cent), while the FTSE saw a bigger offer (-0.5 per cent).

Over on Wall St, the S&P 500 managed to end flat (0.0 per cent to 1418) and there was only 6 points in the whole session ( - 0.4 per cent) – so nothing happened. No news. No data. It’s the same story with the Dow which was flat basically (-0.03 per cent to 13271) and the Nasdaq (-0.01 per cent to 3076).

Moves by sector weren’t that far from zero so not interest there either. In the commodity space the biggest move was good old Dr copper which fell 1.3 per cent, but precious metals had a better session of it with silver up 2.6 per cent and gold up $4 or so to $1623.

In the rates side, US treasuries initially sold off, the 10-year yield rising a few bps to a session high of almost 1.86 per cent. The Bid came on after those news stories about the ECB quashing yield cap rumours and from the high, the 10-year fell 6 bps to 1.81 per cent. The 5-year followed a similar pattern, although magnitudes were small, and at the close was little changed at 0.79 per cent. The 2-year yield sits at 0.29 per cent.

Exciting huh! Not much else to say. Forex moves were small and the Australian dollar sits at 1.0447, which is virtually unchanged from 1630 AEST (high of 1.0468).

So then looking at the day ahead its probably going to be dead unless the RBA minutes contain some magic. The SPI suggests the Aussie market will move a whole 0.3 per cent today but at least it’s higher.

Other than that we get the Reserve Bank’s minutes at 1130 AEST, which I think will just confirm that the bank is on hold. The board acknowledge they misjudged growth and in the recent statement on monetary policy upgraded growth and inflation forecasts. Outside of that there isn’t much for the region. In fact there isn’t much tonight either. We get some data on the UK’s public sector borrowing needs and for the US a speech from Atlanta Fed President Lockhart (voter).

That’s about it then, hope you 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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