US markets were closed for the President’s Day Holiday, so needless to say nothing much happened. In general, a modest risk bid was applied for those markets that did trade and that seems to be based on growing optimism over Greece (reserve requirement cut from The People's Bank of China probably helped as well). They’re set to get the €130 billion apparently and while final negotiations are still underway, all parties have expressed confidence that a deal will soon be announced. Indeed, the French Finance Minister reckons that "all the elements are in place... both with the bankers, private sector creditors, and public sector creditors, the states and central banks".
So Italian and Spanish bond yields continue to fall, the 10-year yield down 10 basis points on both to 5.48 per cent and 5.15 per cent respectively. It’s particularly positive to note that this is occurring while the ECB sit out of the market. Data out last night suggests they bought no eurozone bonds last week which is the first time since August last year. At its height, the bond buying program saw the ECB take up to €22 billion worth of bonds in a single week. So this is a very positive sign the market is normalising. So far then, the ECB have bought almost €220 billion worth of bonds under the SMP.
Otherwise, bonds and gilts sold off as both curves steepened a touch. The yield on the 10-year was up about 4 basis points for both to 1.96 per cent and 2.2 per cent respectively. US Treasury futures were then lower – the 2-year down to 110-05¾ from 110-06, while the 10s were down to 130-18 from 20 . As for Aussie futures, they were off a tick or two with the 3s down to 96.27, while the 10s were down to 95.81.
In the equity space we saw a decent bid for European stocks; the Dax was up 1.5 per cent, the CaC almost 1 per cent, while the FTSE rose 0.7 per cent. S&P futures were then 0.5 per cent higher, while our own SPI is flat ( 0.05 per cent to 4247). Commodities too got a fairly decent bid, especially crude which looks to be higher on improved sentiment with regards to growth and Europe, while Iran continues to weigh. Iran has stopped exporting to the UK and France ahead of the European embargo that kicks in. That said, the Europeans don’t think the Iranian embargo will change too much. They note that they have sufficient stocks to cover what they imported from them for 4.5 years and the Saudis reckon they can lift output. Whatever the case, WTI was up 1.6 per cent ($104.9) and Brent was 0.3 per cent higher ($119). Gold was then little changed at $1734, silver rose 1.1 per cent and copper was also 1.1 per cent higher.
Not much else to tell you really. Moves in forex land were small and we saw the Australian dollar down about 30 pips to 1.0746, euro was then up 15 pips or so to 1.3240, while sterling was down 30 pips to 1.5874. Yen did slip and sits at 79.57.
Looking at the day ahead, we get the RBA’s minutes at 1130 AEDT and shortly after that the RBA governor speaks on an ASIC panel. I doubt that we’ll get much additional information out of the minutes. We’ve had quite a bit of RBA communication lately and the message has been consistent. The Australian economy is holding up well and there are upside as well as downside risks to the inflation outlook – which is why the RBA said that a material decline in demand would be required to see further cuts. The market currently prices a 100 per cent chance of a 25 basis points cut at the May meeting and a 80 per cent probably of a further 25 basis points late this year. With what we know now that appears a little excessive in my opinion but we’ll see what happens.
Elsewhere, New Zealand sees inflation expectations at 1300 AEDT but there isn’t much out otherwise. The UK publish their public sector borrowing requirements and then we see the Chicago Fed National Activity Index. That’s pretty much it.
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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