Scoreboard: Europe's party fizzer

European markets weren't in a celebratory mood despite the region's solid growth, but they were still more upbeat than Wall Street.

There wasn’t a lot going on last night. The key piece of information was that Europe is no longer in a recession. That’s right people; they pulled growth of 0.3 per cent in the June quarter, for the Eurozone as a whole, which let’s face it, isn’t a bad rate of growth - even in the good times. Markets weren’t really in the mood for celebrating though - German and French stocks only just managed to finish in the black - up 0.3 per cent and 0.5 per cent respectively - and the euro didn’t even budge (it’s at 1.3258, which is little changed from yesterday afternoon).

In comparison to Wall St though, the European’s had a good session. I can’t really see what was driving things in the US to be honest – it’s summer so maybe everyone is on holiday - but the S&P500 fell 0.5 per cent overnight (1685), the Dow lost 113 pts (15337) and the Nasdaq was down 0.4 per cent. It’s not that there was much data to speak of, nothing first tier anyway, and corporate news wasn’t that hard hitting. Most of the commentary in the press suggests its taper talk again, or rising bond yields.

But then again bond yields didn’t do much for the session, and are still ridiculously low at 2.71 per cent. More to the point, the key taper talk last night was from St Louis Federal Reserve President James Bullard (voter), and he is in no hurry to taper. Specifically, he reckons he still needs to see more data before it can make the call to pull back on QE. Recall that Bullard had been concerned that inflation was too low, and he wants to see this lift before he would be comfortable with a taper. He also suggests that actual growth outcomes would need to improve as well.

Outside of that there were a few bits and pieces. On the price action we saw some decent gains in precious metals with gold up $15 ($1335) and silver 2.3 per cent higher (copper rose 0.9 per cent and crude was 0.1 per cent higher at $106). The Australian dollar is then up about 30 pips to 0.9123.

So then to the Aussie consumer confidence numbers yesterday - they were clearly a very positive sign - a great result considering the fall in the Australian dollar and Reserve Bank’s rate cut. Recall that a weaker Australian dollar is a loss of purchasing power for Australian citizens; we become poorer, and as a result confidence gets hit.

That confidence still rose 3.5 per cent against these headwinds is fantastic and I suspect it represents three things. Firstly, while the Reserve Bank cut rates (recently a dampener on confidence as since it’s cutting from already low rates, it creates fear amongst the community that something is wrong), the rhetoric surrounding the cut was that this may be it. Certainly many economists think we are at or near the trough which would be a great thing - recall the surge in confidence last time this happened. Secondly, I suspect a bit of joy over the election has creeped in - finally it’s within arms-reach and the electorate can do what they should have done at the last election. Finally, there is less panic around the globe now. Growth fears are much reduced etc.

For our market today, the SPI suggest that Aussie stocks will fall 0.2 per cent, and that’s about the only excitement we’re going to get by the looks. No data to speak of in our session, although there is plenty tonight. Specifically, we see US industrial production, the Empire state manufacturing survey, the Philly Fed index and consumer inflation data.

That’s it, have a great day… 

Adam Carr is a leading market economist.

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