SCOREBOARD: Greek strain

Greek equities sink to a two-decade low bringing other European markets down with them.

Well, market attention is firmly back on Greece and stocks in Europe were pummelled overnight. It was looking like we would get away relatively unscathed in the previous session but no, it wasn’t to be and we saw some big falls. Greek stocks in particular are out of favour, falling another 3.6 per cent overnight, to be 54 per cent lower annually and at a two-decade low.

As to the larger economies, we saw the Dax off 1.9 per cent, the CaC was down 2.8 per cent and the FTSE fell 1.8 per cent. Big moves, especially considering that German industrial production data showed activity blitzed expectations in March (up 0.8 per cent) to rise 2.8 per cent. The euro was little changed though, down only 10 pips or so for the session to 1.3013, perhaps seeing some support from the stronger data.

Over on Wall Street the mood wasn’t as grim in the end, but risk was hit all the same and initially quite hard. So soon after the open, the S&P was off 1.6 per cent, but the index gradually retraced some of those losses throughout the session, the bidding momentum accelerating into the close. At that point, the S&P500 was down 0.4 per cent (1363), with basic materials, consumer services and financials hardest hit. Nearly all the other sectors were weaker with only utilities and healthcare managing to finish in the black. The Dow then fell 0.6 per cent (12932), the Nasdaq was off 0.4 per cent to 2946, while the Aussie SPI fell 0.6 per cent 4274.

Commodities of course were hit hard (softs and metals mainly), but the interesting thing is there was no flow through into gold which also got caught up in the carnage – down about $32 from 1630 (AEST) to $1605. No safe haven bid there and we can’t even look at a US dollar bid as a possible explanation. The dollar index was little changed overnight. In any case, copper fell 2.1 per cent. As for crude there were some modest falls, they could have been a lot worse all considering. This is especially the case given the Saudis were trying to talk down the oil price and the US energy department revised down its 2012 price forecasts for oil and gas. WTI was only off 0.6 per cent for the session $97.3, while Brent was basically flat ($113.15).

In the fixed income space, price action was relatively subdued. The US 10-year yield for instance fell by only 2 basis points to 1.84 per cent, the 5-year yield was off less than a basis point to 0.76 per cent, while the 2-year effectively didn’t move, the yield at 0.25 per cent. As to Spanish and Italian bond yields? Well they rose as you’d expect, although magnitudes weren’t huge. The Spanish 10-year was up 9 basis points to 5.84 per cent, while the Italian 10-year rose 5 basis points to 5.45 per cent.

There’s not really much else to talk about – except the budget last night. Wow. So it turns out the surplus is indeed relying entirely on accounting tricks, strong growth and a surge in revenues, as expected. Expenses, far from being cut are actually being increased next year and through the forward estimates. So I really don’t see how this will in any way encourage the RBA to cut. Yet that’s exactly what we got and in all likelihood will continue to get, notwithstanding the fact that even the Treasury is forecasting robust economic growth. Crazy world.

Looking at the day ahead, there isn’t really much for Australia or the rest of the region. This afternoon we get German trade data and that’s literally about it for the big data. US wholesale sales and inventories are out as well I guess. Otherwise we also see some Fed and ECB speakers.

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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