Scoreboard: European ease

European bonds rallied on expectations the ECB will soon take action to deal with low inflation, while equities on both sides of the Atlantic had a sluggish session.

The most amazing price action for last night was the fairly solid bond rally. The 10-year bond yield at 2.44 per cent is now at its lowest since June last year. It wasn’t just a US phenomenon either; German bunds were off about 6 bps to 1.3 per cent and UK gilts and Italian and Spanish bonds all followed suit.

The thing is… there was nothing to drive it, no data and no news. Sure, expectations are rising that the European Central Bank will take some policy action next week -- and a board member noted last night that the bank was preparing polices to deal with low inflation and credit growth. This isn’t new news though and doesn’t fully explain the 60 bps slump in the 10-year treasury yield since the start of the year.

As for last night:

Rates were off about 6 bps on the 10-year Treasury note to 2.439 per cent at the close. The 5-year fell just under 6 bps to be at 1.479 per cent, while the 2-year is at 0.359 per cent. Aussie futures were up 3 ticks on the 3s to 97.22, while the 10s were up 5.5 ticks to 96.355.

Equities had a sluggish session, easing slightly on Wall Street, and flat in Europe. At the bell, the S&P500 was down 0.1 per cent (1909), the Dow fell 42pts (16,633) and the Nasdaq was off 0.3 per cent (4225). By sector, health tech and financials were the key underperformers, while utilities and telecoms outperformed. European indices were largely flat -- Dax down 0.02 per cent, CaC up 0.04 per cent and FTSE 0.1 per cent higher.

Forex markets saw the euro weaken a bit, by about 40 pips to 1.3594, with the British pound having a bigger downside move -- off about a big figure to 1.6713. The Australian dollar was off about 24 pips to 0.9241. The Japanese yen hovers at 101.8. 

Commodities weakened again with WTI the biggest move this time, falling 1.1 per cent ($102.95), apparently on expectations that crude stocks rose over the last week. Brent was off a more modest 0.2 per cent ($109.9). Metals were all weaker; gold down nearly $7 to $1258, silver was off 0.3 per cent and copper fell 0.3 per cent.

Elsewhere, data was light and mainly from Europe. In Germany, the unemployment rate was steady at 6.7 per cent in May while the eurozone business climate indicators showed an improvement in that same month (at 0.37 from 0.28). Other than that there wasn’t much -- US mortgage applications fell 1.2 per cent in the week to May 23.

Markets today. The SPI suggests the market will post a modest fall today, to be off 0.2 per cent. In terms of the data, the key stuff for Australia includes the Housing Industry Association's new home sales index at 11am (AEST), followed by private sector capex at 11.30am (AEST). Looking at data abroad, we get another estimate of first quarter US GDP -- expected at -0.5 per cent. Jobless claims and pending home sales are also due.

Have a great day.

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