SCOREBOARD: High anxiety

Thankfully the contagion trade died down a bit last night, although anxiety is high. There wasn't a lot of firm news on the European debt situation as a whole, nothing that really clarifies or clears up the uncertainty – more just strands of information, really.

Yields on Italian, Spanish, and Portuguese debt did come in and in part that's due to Chinese buying rumours and, regardless, the fact that an auction of short-term Italian paper did well (€6.75 billion of 12-months at a yield of 3.67 per cent, 2.14 per cent last time, with cover at 1.55). That's the good news. The bad news is that Moody's couldn't help themselves and came out again last night with another review. Irish debt this time, which has been downgraded to junk. Fitch and S&P have their ratings about three or so notches above junk, I believe, and the most recent pronouncements suggest a stable outlook. We'll see.

More broadly, there were stories floating around yesterday, mainly in the UK press, that European leaders were much more open to a Greek default, which would seem odd given the rings of fire the Greek parliament just went through to pass the latest reform package, to errr, avoid a default. To then turn around and allow one would be a joke. I can appreciate that the ratings agencies and those who fund them have pretty much ruled out any solution as being a default, but still. There are ways to overcome this. In any case, I've subsequently found out that European leaders didn't quite say that. It's more the case that some European leaders said that every option is being discussed. Yet it's one thing to discuss something and something else entirely to table it as a real option. The Europeans, for their part, are planning an emergency summit by Friday – so I guess we'll find out more then.

The other big news overnight was the Fed and the fact that QE3 is actively being pushed. My long-held view has been that Bernanke, Dudley and Yellen would look for any opportunity they could to print more money – many economists believe it will be done before the end of the year. Well, these minutes show that they are actively, or publically, canvassing now, although the FOMC overall is split. "A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate… on the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant… the withdrawal of monetary accommodation… sooner than currently anticipated by financial markets.” It's fair to say that last Friday's payroll and the lift in the unemployment rate will give Bernanke et al more ammo to defend their 'statutory mandate'. Stay tuned. Remember that last year QE2 was conduced in the face of and in spite of improving economic data.

Stocks in Europe finished off between 0.6 and 1 per cent weaker, while in on Wall Street we saw the S&P down 0.4 per cent (1313), the Dow off 58 points (12446) and the Nasdaq down 0.7 per cent (2781). Industrials, tech and consumer goods led the index lower with utilities and healthcare posting modest gains. It wasn't all bad though and at the high the S&P was actually up 0.6 per cent – on QE3 talk by the Fed. Into the close though, punters took profits, the index falling 1 per cent over the next 1½ hours. The SPI for its part ended flat (4466) and I suspect that's in part because commodities generally pushed higher. In the commodities space, crude was 2.6 per cent higher on WTI (from 1630) to $96.65 and 0.7 per cent on Brent, with most gains achieved before the Fed minutes. Copper was then 0.4 per cent higher, gold rose about $17 to $1567 and softs were generally all high on the CRB. There was nothing really exciting to report on forex or in the debt markets, with small moves overall.

Just quickly on yesterday's Australian data, I don't think it's all that surprising that NAB's business survey showed the confidence index fell to 0 in June from 6 in May (the average is 6.6), although conditions rose slightly to 2 from 0 (the historical average is 5.8). Confidence is now at its lowest since December 2010 and perhaps now more consistent with some of the press flow we've seen and certainly the feel of the market.

This is not a good result obviously, but the survey seems to offer some conflicting signals on the economy which detract from the otherwise negative message being sent. For a start, while business confidence has certainly been hammered this month and conditions remain below average, the employment index rose to 5 in June, more than double the historical average and the highest result in about a year. Notable improvements were seen in the retail space, which certainly doesn't gel with reported conditions and confidence in the sector (it's been one of the weakest sectors for both). In addition to this, the survey shows business conditions are the highest in New South Wales, which of course stands in stark contrast to the view that non-mining is in a recession. Recall last week's jobs number showing that full-time jobs rebounded in NSW and Victoria.

The way to reconcile these apparent contradictions is to note, as I have in the past, that during times of heightened anxiety, these surveys largely reflect the news flow and stock market moves. It tends to occur more frequently at times when sentiment and underlying economic momentum have parted ways, as they have now. This, by the by, is why the business confidence survey has been so volatile – because the survey isn't actually a reflection of what a business feels are sector specific issues. Rather it has more to do with big picture things like Greece, or fear of a recession or unwarranted fear of the internet or strong Australian dollar, etc. Businesses feel nervous – that's why confidence and conditions have been hit. This is evidenced by the volatility I referred to earlier. So with that in mind we can't take too much from this survey. It's important to note that the last time confidence was this low, in December 2010, it bounced back 8 points the next month. Similarly, conditions have fluctuated 14 points in the space of two months.

Today, look out for Aussie consumer confidence for July (1030 AEST) and then at about 1200 AEST we get Chinese GDP, industrial production and retail sales. Data tonight includes euro zone industrial production and UK employment data.

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