SCOREBOARD: European downer

In a session where, once again, the global economic dataflow was on the positive side, equities instead were belted. In Europe the major indices were down, almost 1 per cent on the Dax, 0.4 per cent on the CaC and 0.6 per cent on the FTSE100. This comes against clear signals that Europe is on the path to recovery and that perhaps the worst is over for the UK as well. So eurozone industrial production rose 0.4 per cent in April and this is after a 0.9 per cent increase the month prior. A good rebound. Similarly, in the UK, employment rose 24,000 although the unemployment rate remained steady at 7.8 per cent.

The US didn’t really have any positive data to move things around or even much news flow. The sell-off has its own momentum, but look, coming after such strong gains, it’s not really a signal or anything at this point. Noise. Anyway, at the close the S&P500 and Dow were both off around 0.8 per cent (1612 and 14,995 respectively), while the Nasdaq was 1 per cent lower (3400). Losses were fairly broad based by sector and even a bounce in commodity prices failed to provide any offset with energy and basic materials also hit hard for the session - and that’s with a 0.5 per cent gain in crude prices ($95.8), a 0.9 per cent lift in copper and an $11 increase in the price of gold ($1387).

Otherwise we saw the US dollar continue to weaken, the yen at 96.04 from 96.7, the Australian dollar up about 40 pips to 9471, while the euro was about 25 pips higher at 1.3332 - and yields rose as well. The 10-year Treasury yield was up a few basis points at 2.23 per cent, the 5-year yield is at 1.15 per cent, while the 2-year is at 0.32 per cent.

Not really much else out there. For the US, monthly budget data shows that for the first eight months of the 2013 financial year, the budget deficit was $626 billion, which compares with $844 billion for the same period last year. News otherwise was concerned with strikes and protests in Greece after its public broadcaster was closed down (only to reopen again soon under a new name). Then in Australia, we saw a modest bounce back in consumer confidence in June. This follows the Reserve Bank’s decision to hold rates steady and probably reflects the fact that the press release accompanying the decision was bland enough not to alarm anyone or feed the fear.

Looking at the day ahead we get Australian jobs figures at 1130 AEST. The figures are for May and the consensus is that jobs fell 10,000 in that month following a 50,000 increase the previous month. The unemployment rate is forecast to have edged up to 5.6 per cent. Recently the employment numbers have been treated like all Chinese data. If it’s strong, it’s unbelievable and if it’s weak... well then, that just shows how stuffed the Aussie economy is, don’t it. What most people probably don’t realise, as it isn’t reported, is that there has been a marked acceleration in jobs growth so far this year, with average employment growth of about 25,000 per month for the first third of the year. This is good growth as in the second half of 2012, jobs growth was around 4,000 per month. Moreover the average over the last decade has been around 17,000 per month. The jobs numbers and the low unemployment rate (currently at 5.5 per cent) shed some light on recent ‘soft’ GDP figures.  For a start, the GDP figures were actually ok, and secondly jobs data supports my view that the GDP figures are being weighed down by volatility anyway (huge falls in inventories, sales of assets etc).  Underlying momentum is in fact stronger. The odds are we probably will get some correction this month in jobs growth following the strong gains in April. The employment numbers bounce around, but that won’t really change the trend so far this year of solid, above trend jobs growth.

As to the dataflow abroad, the key stuff will be US retail sales, jobless claims and business inventories.

Have a good one.

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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