Scoreboard: Healing Europe

There was some fascinating price action overnight, and given we’re still in a relatively directionless period (in which the themes for the year have yet to evolve) is quite something. Firstly though, and on Wall Street overnight, the price action wasn’t really great. Unless, that is, you like bonds for their capital prospects. The US 10-year yield fell (bonds rallied) another few bp to sit at 2.83 per cent as I write. The major equity benchmarks were weaker however, and falls look solid. The S&P500 for instance, is currently down about 1.1 per cent (1822), the Dow has lost 132pts (16304) and the Nasdaq is off 1.1 per cent to 4142.

As to what is driving this turn, as mentioned, there is no hard and fast market theme as yet. All investors have to deal with at this point is the taper, a weaker jobs report, rhetoric from Fed officials suggesting the taper will continue notwithstanding the soft jobs number – and plenty of talk that valuations are stretched. It also doesn’t help that, coming into earnings season, another US retailer is reporting disappointing sales and earnings. All bearish stuff and it makes sense that stocks came off - and moves were big.

Over in Europe the mood was more upbeat and there is good reason for that. Increasingly the wounds of the last few years are healing and it’s especially noteworthy that the Italians issued debt overnight at euro-era lows. 4 billion euro of three-year government bonds were sold at a yield of 1.51 per cent, which is down sharply from 1.79 per cent a month ago. Not to be outdone, Spain then recorded its fastest quarterly growth in six years - 0.3 per cent. Naturally this is all very positive for European equities and they outperformed for the session. The Dax was up 0.4 per cent, the CaC rose 0.3 per cent and even the FTSE100 was up 0.3 per cent. Bigger gains were found in Italy and Spain with the key benchmarks there up 0.7 per cent. It’s not moves in the equity space that I think are fascinating though. It’s more moves in crude and FX - especially AUD and Sterling.

Starting with crude there were some big moves to the downside - bearish momentum is building and for last night’s session, Brent is down 0.9 per cent to $106.6, while WTI is off 1.2 per cent to $91.576. At issue here is a deal to limit sanctions on Iran ( and around $4b in oil reserves) in exchange for a deal on their nuclear program - and of course the supply glut story is getting a lot of airtime. Moves elsewhere in that space were non-descript with gold up smalls ($1252) and copper flat.

Moving on to the FX space, Sterling had a large moves, weakening about 125pips to 1.6376, surprisingly euro didn’t do all that much and in fact the unit is little changed compared to yesterday afternoon (1630) at 1.3672 -and only 40pips or so off its session low. Then the AUD followed Yen and strengthened against the major currencies. As I write, the unit sits at 0.9058 which is about 30pips higher than at 1630 yesterday afternoon.

That’s the major stuff for the session. Just note that the SPI points to a 1.1 per cent fall for our market today. Data wise there isn’t a lot for our session - Japanese current account data is probably the biggest release. Tonight then we see German and UK producer inflation figures, with retail inflation an addition for the UK. European industrial production and US retail sales are also out. Finally there are two Fed speakers - Plosser and Fisher.

Have a great day…