SCOREBOARD: Gone to the Greek

Overseas markets take another slide on European concerns, despite the lack of any new data.

Markets were hit again by European concerns although there was nothing fresh out last night. Just a risk off continuation – day six for the Dow and crude in fact. Greek politics remains in turmoil and the way things are running now, fresh elections are the best bet. Maybe they should be held in 2013? Just an idea. But the good news is that the anti-bailout parties didn’t manage to form a coalition. This is a great victory for reason and logic.

The misery Greek citizens are feeling now would reach new depths without monies provided by their generous European friends. Austerity cannot be avoided. It’s not like reneging on the bailout terms is going to pay wages, pensions, welfare and provide services. How leaders have failed to explain this to citizens is a mystery to me. I think the leaders of the main parties know it – Samaras said, when asked to reject support for the European rescue of Greece and austerity, that he was being asked to "put his signature to the destruction of Greece”. What do Greek citizens think will happen if they refuse to meet bailout terms? That austerity will magically disappear? Who will pay the bills? While we are on that, the Europeans (the European Financial Stability Facility to be exact) have announced they’ll still pay Greece its next bailout instalment by June – €5.2 billion worth with €4 billion of that due tonight.

Over in Spain, and as flagged previously, it looks like the government will partially nationalise BFA Bankia and they also asked the biggest lenders to increase capital buffers against real estate write-downs. Not really new news by the way, but the price action was pretty rough regardless. Stocks in Spain were down by another 2.8 per cent overnight and the 10-year bond yield shot up over 6 per cent which is the highest yield since mid-April and uncomfortably close to the peaks of 6.78 per cent reached in November last year. Compared to a low in March, the Spanish 10-year is about 130 basis points higher. Messy.

The Italian 10-year bond yield for its part rose 14 basis points to 5.59 per cent, while euro fell about 50 basis points to 1.2939. The only positive in European markets was the Dax – this index actually managed to put on 0.5 per cent (CaC down 0.2 per cent and FTSE down 0.4 per cent) led by basic materials and tech stocks.

In the US, markets actually had a worse session of it, the S&P closing 0.7 per cent lower (1354) although it had been off 1.5 per cent. There wasn’t really a lot of major news in the US and certainly no major data, so the price action was driven solely by European concerns. All sectors on the S&P were weaker with financials, industrials and health care stocks the key underperformers. The Dow, as mentioned has fallen for the sixth consecutive session and was off 0.8 per cent last night (12835) and both this index and the S&P are off just over 3 per cent for the last five sessions or so. As for the Nasdaq , this index was 0.4 per cent weaker, while the Aussie SPI fell 0.6 per cent to 4256.

Commodities followed suit and were weaker overnight, although magnitudes weren’t huge. In the metals space gold was down about $5 to $1589 which is the weakest since January, and copper fell 0.4 per cent in New York and is nearing April lows. Crude was then mixed with WTI down 0.5 per cent ($96.5) and Brent up 0.1 per cent ($112.8).

You can probably already guess, given it was very much risk off, that US treasuries were bid higher (yields lower) and they were. The 10-year yield is approaching the record low yield set in September last year, falling another 1 basis point overnight to 1.82 per cent. The 5-year yield is pretty much at a record low at 0.75 per cent, which is little changed from yesterday afternoon and it’s a similar story for the 2-year at 0.25 per cent. Aussie futures then rose about four ticks a piece with the 3s at 97.38 and 10s at 96.72.

That’s most of the exciting stuff. In terms of forex moves, just note that the Australian dollar is hovering just over parity at 1.0036 which is, what, about 50 pips lower than yesterday at 1630 AEST. Euro I’ve mentioned and so sterling is 20 pips lower at 1.6129 and yen sits at 79.64. Otherwise the only data out was German trade data which showed exports from this economic powerhouse rising 0.9 per cent (down 0.5 per cent expected) in March after a 1.6 per cent surge in February. Imports rose 1.2 per cent after a 3.9 per cent jump. Then US wholesales rose by 0.5 per cent in March, while inventories were 0.3 per cent higher.

Data out to day includes the Australian employment figures at 1130. Recall that in the numbers we saw last month (for March), jobs surged as did hours worked. Just considering base effects, you’d expect a small fall this time round and the consensus is for exactly that. Employment is expected to fall 5000 and the unemployment rate is forecast to rise to 5.3 per cent. Tonight we see UK industrial production, the BoE’s rates decision (no change expected) then we see US trade and jobless claims tonight.

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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