Scoreboard: German good times

Most markets look to have had a relatively subdued session overnight. Not much data and not much news. Macro-wise, there was little. The most important thing to note was the German ZEW survey, which is a survey of investor sentiment. The current index rose to 41.2 in January, which is well above the average of -23. The expectations component fell a little to 61.7 from 62, but this is above the average of 24. German investors are happy and expect good times.

The IMF upgraded its growth forecasts, but it alerted the market to this some time ago. Its forecasts don’t move the market anyway. For what it’s worth, it estimates the global economy will expand by 3.7 per cent this year, up from a prior expectation of 3.6 per cent. Not much of a revision, but an upgrade nevertheless, although it is still on the low side. For 2015, it expects growth to be at 3.9 per cent. The main point to note is that it’s above-trend global growth. It’s also important to note that the IMF is increasingly concerned about low inflation. While it doesn’t think deflation is a base case, this low-inflation environment increases the likelihood of deflation in the event of an adverse shock.

The market responded to that and some earnings reports from Verizon and Johnson & Johnson by not doing very much at all. Verizon beat expectations and went from a sizeable loss to profit, but the stock was still in the red at the time of writing. With about an hour to go, the S&P500 overall is 0.2 per cent higher (1842), the Nasdaq is up 0.6 per cent (4222), while the Dow is off 0.21 per cent (16426).

In the forex and commodity space, crude actually punched higher both WTI and Brent up around the 0.5 per cent mark to $94.88 and $106.8 at the time of writing. In the metals space, copper was flat, gold was off $9 to $1242 and silver was down almost 2 per cent. The Australian dollar is 15 pips lower (from 1630 yesterday afternoon) at 0.8805. Euro is up about 15 pips to 1.3560, while the yen is at 104.3 from 104.6. Rates did little; the US 10-year bond rate is at 2.82 per cent.

For the market today, the SPI is little changed (down 5pts to 5283. The key dataflow for our region will be the Aussie consumer price index at 1130 and consumer confidence prior to that at 1030. For inflation figures, the consensus forecast is that inflation rose by 0.5 per cent/0.6 per cent on the headline and cores, which would see annual inflation rates around the 2.3 per cent to 2.4 per cent mark.  

Realistically Australia’s inflation rate comes down to two factors only: the exchange rate and food prices. Those two will determine whether Australia can continue to have low inflation rates. On the confidence front, there is every reason for it to rise, although it seems policymakers are doing everything they can to ensure confidence remains subdued.

We will also see the Bank of England’s minutes tonight alongside UK employment figures.

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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