SCOREBOARD: European push

Wall Street was closed for Presidents' Day, while European stocks rose slightly as the ECB sought to downplay currency wars.

US markets were closed for the Presidents' Day Holiday, so needless to say nothing much happened overnight. That’s okay, because we’re in store for some entertainment today apparently, when Wayne Swan does a stand-up comedy act in front of the Australian Workers Union and their Don, Paul Howes. Spoiler alert, but the punch line is that Labor is not dead at the next election. Hahahahahahaha! Wayne, you and Hillary (sorry, the glasses threw me – Julia) couldn’t even win the last one! He cracks me up that guy – the world’s funniest Treasurer.

Anyway, onto a more serious topic – the market. Stocks pushed higher in Europe, if only just, with the CaC up 0.2 per cent and the Dax up 0.5 per cent. Across the channel the FTSE100 fell 0.2 per cent. There was no major news or dataflow to really guide things, especially with the US closed, and honestly there wasn’t too much of interest for punters.

The eurozone current account balance was out and showed a modest narrowing in the surplus to €13.9 billion, down from €15.9 billion. Then Mario Draghi, the head of the European Central Bank, gave a speech in which he played down the currency wars and suggested that "Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro-economic policies meant to boost the economy".

See, there you have it – the US Treasury line that currency manipulation is okay, so long as it is seen as a symptom of other economic policies. All that matters is the rhetoric – the ‘verbal discipline’ that Draghi alluded to – because all Japan need say is that they are targeting inflation, not the currency, and then they can print to their heart’s content. Word on the Street is that the Bank of England and the Fed will now target an unemployment rate of 0 per cent and an inflation rate of 10 per cent. Okay, that last bit isn’t true.

Following an initial yen weakening, we haven’t seen much in the way of movement in the wake of the Group of 20 though. The Australian dollar is up about 3 0pips or so to 1.0296, following the euro which was up about 20 pips to 1.3351. The yen is otherwise little changed at 93.97. Similarly there wasn’t a lot of movement on global rates, and Australian debt futures were unchanged with the 3s at 97.1 and the 10s at 96.465.

For the Australian market today, the SPI suggests stocks will fall 0.1 per cent. There are of course more earnings reports due from the likes of Arrium and Southern Cross Media.

Macro wise, we see the Reserve Bank's minutes. Now, we know they held steady at the last meeting, but they have clearly signalled that they stand prepared to cut again. My read of the situation is that ‘growth girls and boys’ on the board would love to cut again, but don’t credibly have that opportunity at the moment. Stock markets have rebounded and every fear factor they nominated last year to cut turned out to be complete rubbish.

Notwithstanding that, board members John Edwards and Heather Ridout have both made it very clear they want lower rates, largely to deal with the high Australian dollar which in their view is harming the economy. I’m not sure what evidence they have to support that claim though – apart from an anecdote at the club.

Export growth in Australia has been strong over the last couple of years, despite the strong dollar, and taking out the temporary impact of the floods, it annualises to almost 6 per cent. Think of it this way: how many timse have you heard over the last two years or so that the strong Australian dollar was the reason our stock market was underperforming? Well, the dollar hasn’t really changed and is still in the same range it has kept for those last two years – yet the All Ord’s surged recently.

Clearly then, the strong dollar had nothing to do with our markets' underperformance. So the strong dollar is not harming the nation. If it were, I would be all for lowering it – especially as countries like the United States, United Kingdom and Japan are blatantly manipulating their currencies. Sorry – I meant 'using monetary policy to shore up economic growth’, nudge nudge, wink wink, eh eh, "shore up”.

So, look for the Reserve Bank minutes to outline why rates could head lower. I’m thinking the end of the mining boom, etc. The usual misleading crap.

Outside of the minutes we get the German ZEW survey and the US NAHB housing market index.

That’s about the lot, have a great day…

Adam Carr is a leading market economist.

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