SCOREBOARD: Greek paradox

The headlines we are seeing today are what I thought we'd have seen yesterday. You know, something like "Fresh Greek debt swap pledges boost market”, or something like it. Because that's what we got, yet the market was smashed. As it is last night, these pledges did help to lift sentiment although moves don't offset those of the previous session.

Word is that Greece has 58 per cent of private sector participants signed up to the debt swap deal so far, which at the very least means the Greek government has the numbers it needs to activate collective action clauses – if they need to. That said, the IIF and some major bond holders have all expressed confidence that Greece will get over 75 per cent participation. If on the other hand they don't and then have to activate the CACs? No one really knows what the market impact will be. Theoretically it should be nothing, but history has shown this isn't the case and contagion fears have often shot up. But my gut feel now is that it might pass without incident, a bit of risk for sure, but not the carnage that we would have seen even last year. That's largely because I think market psychology has changed. You can only cry wolf so many times and there is already considerable evidence of Greek fatigue.

As it is for last night, the euro bounced around (70 pip range) but ended little changed at 1.3131. European stocks were then higher with the Dax up 0.6 per cent, the CaC up 0.9 per cent and the FTSE 0.4 per cent higher. Reports in the paper and newswires suggest this is because of the new pledges and also because of the ADP employment report, which showed jobs growth of 216,000. I'm not buyin' it. It's all positive don't get me wrong, but the pledge news isn't new and the ADP result came in as expected. It's not even a great survey. Yesterday's moves were inexplicably large – yes inexplicably – and this is just a very modest correction I think. So across the Atlantic, the S&P500 is up about 0.6 per cent with financials, industrials and consumer services the main outperformers, although all sectors other than utilities look to be higher at this stage. The Dow is currently 83 points higher (12844), the Nasdaq is up 0.8 per cent (2932) while the SPI is 0.4 per cent higher (4172).

On the debt side, US treasuries sold of modestly and the yield on the 10-year was about 1 basis point higher at 1.967 per cent. The 5-year was then 1 basis point higher (0.84 per cent and the 2-year was almost 3 basis points higher at 0.3 per cent, and I think the relative underperformance of the short-end had to do with a WSJ article suggesting the Bernank's finger's a twitchin'. You can't keep this guy away from the printing press for too long – it's all he knows. In any case the WSJ suggests the Fed is considering a number of QE approaches, including operation twist mark II. Aussie futures then were mixed, the 3s down a tick (96.44) and the 10s up a tick (96.00).

Elsewhere we saw gold up $10 to $1685, silver rose 2 per cent and copper was up 0.8 per cent. Crude was 1.6 per cent higher on WTI ($106.4), while Brent was 1.9 per cent to $124.32. The Australian dollar was otherwise little changed at 1.0574, ditto the sterling at 1.5735, while the yen pushed higher and sits at 81.19 from 80.73.

In other news and data, the RBNZ left the cash rate at 2.5 per cent as expected and there was nothing in the statement that was too exciting. On hold for the foreseeable future. The statement read kind of like the two handed economist. It seems like on the one hand, the recovery in household spending and high export commodity prices might bring on a near-term hike. But on the other hand, the RBNZ note that the strong New Zealand dollar is negating the need for "future increase in the OCR".

Looking at the day ahead, we get the employment numbers for Australia at 1130 AEDT. The market looks for a soft 5000 increase (me at 10,000) with unemployment forecast to rise to 5.2 per cent from 5.1 per cent. Yesterday's GDP numbers got the usual suspects all excited about more RBA cuts and if today's numbers are soft they'll be champing at the bit. Markets have already boosted the odds of further rate cuts and that was to be expected. I don't think the RBA will actually cut though as the national accounts still show domestic demand running well above trend and GDP, excluding volatility and disasters – at trend. Note that the manufacturing sector is showing strong growth, which I would have thought would be a cause for national celebration – funnily enough I didn't see that fact reported anywhere.

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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