SCOREBOARD: Global bounce

Equity markets on both sides of the Atlantic were up overnight as investors' faith in a European resolution was buoyed.

Then we had the ECB meeting last night. Now they kept rates unchanged and didn’t flood the market with another run of unlimited funds. But the decision wasn’t unanimous and "a few” members voted for lower rates. In the end, the head of the ECB, Mario Draghi, was of the opinion, as were the majority of the ECB, that "some of these problems in the euro area have nothing to do with monetary policy … I don't think it would be appropriate for monetary policy to fill other institutions' lack of action". In any case, Draghi said that the ECB is willing to act if necessary and confirmed he is part of a committee that is planning closer European unity. Markets liked that, a lot, and moves on European equities were huge. The Dax was up 2.1 per cent while the CaC and FTSE were up 2.4 per cent apiece. and that’s with some fairly rubbish data. German industrial production, for instance, fell 2.2 per cent in April, which was weaker than the 1 per cent expectation and offset the previous months 2.2 per cent gain.

Over on Wall Street, the major indices (S&P, Dow and Nasdaq) were up 2.3 to 2.4 per cent with all sectors putting in a solid session with energy, industrials and financials the key outperformers. Basically the market spiked at the open and then traded sideways for a bit before a final surge into the close. The catalyst in the final hour or two was the Beige Book. Recall that this is an anecdotal report (from CEOs) of business conditions compiled by the Fed. The report suggests the economy "expanded at a moderate pace” over the April-May period with only one district reporting slower growth. It’s not indicative of stall speed growth which is the big relief I guess.

And certainly it was a relief to commodity markets – crude pushed higher, about 1.5 per cent to $85.52 on NYMEX, while Brent was 2 per cent higher to just over $100. Gold was then up smalls to $1621 while copper was also up smalls. For forex, we saw Australian dollar up about 75 pips or so to 0.9926 (but nearly two whole cents since I wrote yesterday), euro was up over a big figure to 1.2570, while sterling and yen are at 1.5942 and 79.22 respectively. Finally, for the price action, bonds generally sold off and yields pushed higher. In the US, the 10-year treasury yields rose roughly 8 basis points or so to 1.66 per cent. The 5-year was up about 5 basis points to 0.73 per cent while the 2-year is at 0.27 per cent.

The calendar for Australia today includes employment at 1130 AEST. The consensus forecast is that no jobs were created in the merry month of May, following about 15,000 jobs in April, and the unemployment rate is expected to rise to 5.1 per cent from 4.9 per cent. Employment growth so far this year has been pretty decent so, and purely because the data is volatile, a pull-back isn’t unreasonable. Very strong economic growth suggests that the outlook for the jobs market is good notwithstanding concerns over the global economy. There is a lot of disbelief about yesterday’s GDP figures, I appreciate that many people refuse to believe them or are sceptical. But these people are fools. These same people didn’t raise one objection when GDP was sub-trend. Remember that, they embraced that data. Why so? Are we expected to listen when they turn around and try and fault it now, when it doesn’t match their flawed preconceived ideas, when it is perfectly consistent with low unemployment? Gobsmacking lunacy, as I said yesterday, and a sad indictment.

Overseas, tonight the Bank of England meets although no changes are expected. In the US, jobless claims are out and there is a swathe of Fed speak – chairman Ben Bernanke (to Congress), Narayana Kocherlaktoa, Dennis Lockhart and Richard Fisher. Consumer credit numbers are also due, which have thus far been busting records.

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

Follow @AdamCarrEcon on Twitter.


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