Scoreboard: Feeling Beige

Wall Street was flat despite an upbeat Beige Book, while oil prices fell as Russia-Ukraine tensions eased.

Following all the excitement of the last couple of sessions, last night’s moves were comparatively tame, with the biggest moves on crude. News flow was OK -- mixed in some places, with the non-manufacturing ISM falling 2.4 percentage points to 51.6 per cent in February, driven by a large 8.9 percentage point fall in employment. Similarly, the ADP employment report suggests US jobs growth was weaker-than-expected in February, rising 139,000 when 155,000 was expected, although this is an improvement from the previous month’s 127,000 gain.

Then there was the Beige Book. This was generally upbeat, all considered. Remember the large impact the weather has had on the data? Well, even with that, the Beige Book showed “Reports from most of the 12 Federal Reserve districts indicated that economic conditions continued to expand from January to early February … Eight districts reported improved levels of activity. More importantly though, the Fed’s report noted that “The outlook among most districts remained optimistic”.

That’s all good and well and suggests we can look forward to a period of catch-up growth when the weather settles. Interestingly though, and despite the significant improvement in the labour market, Fed Chair Janet Yellen said in her speech at her swearing in ceremony that “The goals set by Congress for the Federal Reserve are clear: maximum employment and stable prices”. She then went on to say that “It is equally clear that the economy continues to operate considerably short of these objectives”. Very bearish stuff and words that lend themselves to a delay in further tapering.

Global equities didn’t do much though and at the time of writing, moves on the major indexes were little different from zero. The S&P500 is 0.1 per cent lower at 1872, the Dow had lost 34 points to be at 16,361, and the Nasdaq was up 0.1 per cent (4356). The offer was a little stronger in Europe, with the Dax off 0.5 per cent, the Cac 0.1 per cent and the FTSE100 0.7 per cent weaker.

Forex action was reasonable. The Australian dollar pushed higher again, not quite reaching the highs it made following the surprise lift in domestic GDP yesterday. Currently at 0.8986, the unit is about 30 pips higher than at 1630 AEDT. The euro was then up smalls to 1.3739, the British pound was about 60 pips higher to 1.6731, while the yen sits at 102.29.

Commodities had a mixed session, with the biggest moves on crude, where prices were smashed again. WTI fell nearly 2 per cent to $101.27 and Brent was off 1.3 per cent ($107.7) as the prospect of war in Eastern Europe waned. Adding to crude’s woes was a report from the EIA that showed supplies of distillates on the rise. Moves elsewhere were comparatively smaller -- gold was basically flat at $1338, as was silver, while copper fell 0.4 per cent.

Rates were little changed. The US 10-yr yield barely moved in the end (5 bps range) and sits at 2.689 per cent. The five-year yield is then at 1.53 per cent and the two-year at 0.33 per cent. Aussie futures were a little higher -- the tens up less than a tick at 96.00, and the threes one tick higher at 97.090.

Elsewhere the news and dataflow was light. The breakdown of eurozone GDP (0.3 per cent in the fourth quarter) showed that growth was driven by investment. In another release, retail sales surged 1.6 per cent in January after a 1.3 per cent fall the month prior. For Britain, the services PMI was steady at 58.2 from 58.3.

In markets today, the SPI suggests our stocks will come off a little -- down 0.2 per cent. In terms of the dataflow, for Australia the key releases include retail sales and the monthly trade figures at 1130 AEDT. Tonight we see German factory orders, rates decisions from the Bank of England and European Central Bank (no changes expected), while for the US we see factory orders, initial jobless claims and unit labour costs. The Federal Reserve also has two speakers, William Dudley and Charles Plosser.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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