SCOREBOARD: Greek fizzle

Another solid round of US economic data failed to enthuse market participants last night. Headline retail sales disappointed the market expectation, rising 0.4 per cent compared to a 0.8 per cent forecast. Nevertheless, sales ex autos and gas were up 0.6 per cent, which was stronger than expected (0.5 per cent), although December sales were revised down to -0.2 per cent from flat. Added to that, business shipments were 0.7 per cent higher in December (9 per cent, year-on-year) while inventories rose 0.4 per cent.

All good news, but unfortunately, markets are still waiting on Greece – and the meeting Euro group ministers had planned for tonight has been delayed to February 20. The Euro group president said Greece still had more technical work to do. The tone wouldn't have been helped by Moody's downgrades yesterday either I guess and so, despite positive data, global equities sold off. The S&P is currently down 0.6 per cent (1343) with basic materials, financials and industrials leading the index lower, although all sectors are weaker. The Dow is off 52 points (12821), the Nasdaq is 0.5 per cent weaker (2918), while the SPI is down 0.3 per cent (4196). In Europe, stocks were all modestly weaker with the Dax off 0.15 per cent, the CaC down 0.3 per cent and the FTSE off 0.1 per cent.

The interesting thing is, despite Moody's downgrades, Italy had no trouble selling €6 billion worth of 3-year bonds at an average yield of 3.41 per cent – the lowest in almost a year and down from 4.83 per cent in January. Spain sold €5.4 billion 12-month bills at 1.899 per cent, which is the lowest rate since October 2010.

Against that backdrop, US treasuries pushed a bit higher, mainly long end, and the yield on the 10-year fell about 4 basis points from 1630 to sit at 1.927 per cent. The 5-year in turn was off just over one basis point to 0.81 per cent, while the 2-year yield pushed modestly higher. Aussie futures for their part were up a few ticks, with the 3s at 96.520 and the 10s at 95.985.

In the forex space, the Australian dollar is down about 50 pips on a big figure range, currently at 1.0640, and it was a similar move for the euro and sterling (down 65 pips to 1.3094 and down 50 pips to 1.5664). Commodities were generally weaker, although moves were comparatively small. Gold is down smalls from 1630 at $1715, while silver and copper are off 1 per cent. Crude for its part is mixed, with WTI down smalls ($100.8) and Brent up smalls ($118.2).

There were a few other interesting bits of information. UK inflation still remains well above the band, rising 3.6 per cent over the year to January, although that is down slightly from 4.2 per cent last month. Apart from a temporary dip in 2009, the CPI has been above target for most of the last six years – above 3 per cent for most of the last four years. Against that backdrop, the BoE Governor, Mervyn King, has a very ambitious expectation that the CPI will head down toward 1.75 per cent over the next year or so, and reckons it'll stay there for the next two years. In any case and for this month, the headline CPI fell 0.5 per cent on a monthly basis, which is the first fall since June and the biggest fall in about three years. Unfortunately, the ONS advises that the fall is within the usual variation and was brought about by a seasonal fall in clothing – in part sales and the like. Indeed, clothes alone knocked off 0.3 per cent of the 0.5 per cent fall.

S&P then revised California's outlook to positive from stable. Also in the news, a large global fund manager has criticised the RBA for a lack of transparency and for confusing the market with its communications.

The day kicks off with New Zealand retail sales at 0845 AEDT. The market looks for sales growth of about 1.1 per cent. At 1030 AEDT we get another update of consumer confidence, for February. Aussie motor vehicle sales then come out at 1130 AEDT. Tonight, and for Europe, look out for euro zone fourth-quarter GDP, and the BoE's inflation report. In the US we get industrial production, the Empire manufacturing survey and the FOMC minutes.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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