SCOREBOARD: European hangover

Global stocks were subdued following poor UK data and negative euro-talk, while the Aussie dollar and commodities saw some gains.

Stocks on both sides of the pond may have pulled back some – mixed more than anything – but commodities have pushed higher, taking the Australian dollar along for the ride.

There really wasn’t much news flow to really drive things and data was confined to German inflation (unchanged at 1.8 per cent year-on-year, final estimate) and UK industrial production was down 1.5 per cent in January after a 1.5 per cent gain the month prior. The sluggish session on the stock market reflects that, but we’re not talking significant falls – the Dax was off 0.2 per cent, the CaC up 0.1 per cent and the FTSE 0.1 per cent higher.

Markets also seemed to brush off some commentary from Bundesbank head Jens Weidman, who said the eurozone crisis was not over because many countries had years of reform ahead of them. It’s true that countries have much reform to undertake, but I think 'crisis' is a poor term to use – unnecessarily alarmist. Only a wilfully deliberate act could bring the crisis back, in my opinion.

Anyway, over in the US stocks are down between 0 per cent and 0.4 per cent as I write (S&P500 0.2 per cent to 1552; Dow -0.02 per cent to 1443; Nasdaq -0.4 per cent to 3240), with nothing really to move things. Of interest, but not market moving, the GOP has come up with a plan to cut the budget deficit and I have to respect Paul Ryan, who presented the framework, for stating what is obviously true now. He noted that unless action is taken now, "pressed for cash, the government will take the easy way out: it will crank up the printing presses. The final stage of this intergenerational theft will be the debasement of our currency."

This is happening as we speak, with economic posers like Bernanke, Dudley and Yellen knowingly monetising Obama’s deficits. It’s a disgrace and, as Ryan notes, the end result would be a crisis. This is exactly why I’ve been so critical of the Fed. Having caused the GFC, they are hell-bent on pursuing further destabilising policies, it's simply incredible to watch. And even more incredible to see how many guffawing 'yes men' support it.

Anyway, the Republican plan would see spending cuts, mainly from Medicare and associated health laws, and while it doesn’t lift taxes anywhere (cuts corporate tax) it would leave in place tax hikes that occurred for wealthy Americans in the January cliff deal.

There were contrasting moves in equities – commodities look to have pushed higher, with little news once again, apart from just a sense they had fallen too far. So gold is up $14 to $1592, copper is 0.9 per cent higher and crude 0.6 per cent higher ($92.6). As mentioned,  this helped see Australian dollar push up 50 pips or so to 1.0322.

Elsewhere in the forex space the euro is up smalls to 1.3035, the British pound is little changed at 1.4904 having hit a low of 1.4837 after data showed rising inflation expectations and a fall in industrial production. The yen was a little bit stronger and sits at 96.01.

Otherwise in the rates space, US Treasuries pushed higher with the 10-year yield down 4 bps to 2.02 per cent, the 5-year almost 3 bps lower at 0.867 per cent and the 2-year at 0.26 per cent.

That’s pretty much it for overnight moves, so turning to NAB’s business survey, I have to confess I am surprised by the result – or lack of it. Bucking a global trend, confidence actually fell in February (1 from 3) as did conditions (-3 from -2). These are both well below the averages of about 6 for confidence and 5 for conditions. The main impact of this low confidence is that non-mining business investment is at its lowest since the recession of the '90s.

I put this squarely down to fearful business leadership though, as broader economic metrics – consumer spending, aggregate demand – have actually been quite good for some years. Stocks markets are rallying hard and there has been no reason to cut back on investment – it’s not like we had a glut, it’s just an inability of leaders to see reality, do their jobs and plan for the future. Anyone can sit on their hands and do nothing.

Fair enough it doesn’t help when policy makers and talking heads run around talking doom and gloom like the Reserve Bank – most economists and commentators did. The bank’s pre-emptive rate cuts contributed to a sharp deterioration in business confidence through 2011 and 2012 as it gave credence to all the hysteria – eurozone collapse, US double dips etc. – and the truth is it has never really recovered.

Now that this has all ended though and confidence has yet to turn, I can only assume that the business community holds a greater contempt for Gillard, Swan and their masters like Paul Howes and his associates than I thought. If these people had any thought for the national interest they’d have the election now and get the annihilation over and done with.

So looking at the day ahead, the SPI suggests the Aussie market will rise a few points (9 on the SPI). As for the data we get consumer confidence at 1030 AEDT. Unlike business confidence, consumer confidence has surged since the begging of the year as share markets rallied, the fiscal cliff came to nothing and the Reserve Bank stopped slashing rates.

Home loans follow at 1130 AEDT, while tonight we see eurozone industrial production, US retail sales, business inventories and monthly budget data.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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