Scoreboard: Fear of speech

Modest falls were the order of the day last night, the S&P500 down 0.4 per cent at the bell (1676), with the Dow off 31 points (15,453) and the Nasdaq off 0.3 per cent (3598). It’s not that there was anything to really spook the markets as such.

Earnings overnight were mixed, with Coca-Cola disappointing, but then companies like Johnson & Johnson beat estimates and lifted their outlooks. The Vampire Squid (Goldmans) then joined the ranks of banks reporting strong earnings growth and most of the news and dataflow was otherwise quite good. I get the impression investors are just waiting for Ben Bernanke’s testimony to Congress, which starts tonight.

It was interesting to see, ahead of that meeting, the US dollar weaken. Currency markets are obviously not expecting a hawkish Fed. Fair to say the Fed has gone some way in correcting the market’s overreaction to past QE tapering fears and it’s probably a reasonable bet that Bernanke will be very careful not to exacerbate any exit concerns.

Anyway, the weaker US dollar saw the Aussie up about 70 pips to 0.9254; the euro rose 85 pips to 1.3166; the British pound was 30 pips higher to 1.5157 and the yen sits just below target at 99.071.

The natural flow-on from a weaker US dollar was stronger commodity prices and generally this is what we saw. Copper was up 1.1 per cent and even gold rose $7.6 to $1291, although crude fell 0.4 per cent ($105.9).

As for the economic data, it confirmed what we already know: the US economy is getting stronger. US industrial production rose 0.3 per cent in June and the NAHB housing index shot up to 57 from 51.These aren’t major moves or anything – and you can tell that from the lack of market reaction – but they add and are not irrelevant.

Bits and pieces overnight – the US 10-year yield was little changed, down a basis point or two to 2.53 per cent. The German ZEW survey showed economic sentiment, already at a high level, dipping in July to 36.3 – although the current situation index rose to 10.6 from 8.6.

Inflation readings in the US and UK showed inflation accelerating. Inflation has been above target for years in the UK and, following a brief stabilisation, looks like it’s accelerating again with the annual pace lifting to 2.9 per cent from 2.7 per cent (although month-on-month inflation actually fell 2 per cent). In the US meanwhile, inflation rose 0.5 per cent to be 1.8 per cent higher annually from 1.4 per cent.

Looking at the day ahead, the SPI suggests our market will be flat today (a fall of 0.1 per cent) and there are a few things to note otherwise. Australian dwelling commencements at 1130 AEST will be important, as will BHP Billiton’s production report.

Recall the current narrative that the mining boom is over and China is slowing. Against that backdrop the iron ore price has shot up to just under $130 and Rio Tinto obviously reported a strong lift in production yesterday. This highlights my non-consensus view that much of the concern about the end of the mining boom is driven by alarmism and a misunderstanding of the dynamics driving Chinese and global growth more broadly.

Tonight, the key data of interest will be Bernanke’s testimony to Congress, but we also get June housing starts and the Beige Book. Elsewhere we see the Bank of England minutes, UK employment numbers and the Bank of Canada also meets.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.