SCOREBOARD: Home run

Well there was a bit of good news last night for the US housing market and that was a 7 per cent spike in housing starts in June, to 760,000 which is the highest number of starts since 2008. This was stronger than the 5 per cent expectation and offsets the 4.8 per cent fall we saw in the month prior.

Now this is all great and starts are a fair bit higher than what they were this time last year (575,000 as a three month average) – so they have shown a clear acceleration in the June quarter. So far then we've seen starts average about 740,000 for the quarter, up almost 100,000 from the average of the second half of 2011. So the recovery is there, as modest as it is, but – and there is always a 'but' when we talk about US housing – starts are still about 50 per cent below the average.

Markets took it though and US stocks bounced from the open and managed to close 0.7 per cent higher on the S&P500 (1372) and Dow (12890). Some decent earnings reports (IBM, Honeywell, Bank of America, etc) helped that and indeed the good earnings news for tech stocks saw the Nasdaq close 1.1 per cent higher. This is a remarkable effort given that Bernanke was speaking to the US House of Reps overnight, weaving in his needlessly pessimistic and confidence destroying opinions on the economy. Then again, maybe it was because of it – QE and all that – but markets appear to have calmed down for now.

Certainly The Beige Book (out this morning) shows there is every reason to be calm, of course. Recall that this is a collection of anecdotes (compiled by the Fed) from business leaders on their respective industries. It shows that "overall economic activity continued to expand at a modest to moderate pace in June and early July”. And that "overall, Districts reported that their contacts remained cautiously optimistic about future business conditions”. So it wasn't a bad report, in fact it was a good report which shows, despite the volatility of some data, that the economic recovery remains on track and nothing has changed there. Indeed, there is no sense that momentum has really slowed and certainly businesses are not reporting these signs of stall speed growth or recessions that we hear about.

As for Europe, stock markets had a strong session and the Dax rose 1.6 per cent, the CaC was 1.8 per cent higher and the FTSE put on 1 per cent and that's despite Spanish and Italian bond yields pushing higher. The 10-year yield was up 12 basis points for the Spanish to 6.9 per cent, while for the Italians, the yield is 6.05 per cent or about 7 basis points higher. No real major news here.

Elsewhere, positive sentiment flowed over into the commodity markets and the CRB index was up about 1.2 per cent for the session. Precious metals were weaker with gold down almost $16 to $1573 and silver was weaker as well. Having said that copper rose 0.5 per cent and crude went out another 0.8 per cent to be at $89.94.

On the rates side there was little action. The 10-year Treasury yield was unchanged at 1.49 per cent, the 5-year yield was at 0.6 per cent and the 2-year is at 0.22 per cent. Aussie futures were similarly quiet in the end – up half to one tick with the 3s at 97.76 and the 10s at 97.165.

On the forex front, the Australian dollar saw a modest bid and put on 40 pips to 1.0367, while euro did nought, largely unchanged at 1.2281 just off the session high and from a low of about 1.2222. Otherwise yen is at 78.8 and sterling is at 1.5652 – no excitement despite the UK unemployment rate falling to 8.1 per cent in the three months to May from 8.2 per cent. And get this, jobs rose 181,000 over the same period to 29.4 million which is the highest level since November of 2008. The Olympics? That'd be helping I'm sure but the magnitude of the rise suggests there is something more at play and maybe the pessimism is overdone.

So it should be a good day for Aussie stocks and the SPI suggests we may see gains in the order of 0.8 per cent. Otherwise, there's not really much else to report. European construction output rose 0.1 per cent in May following a 3.7 per cent fall the month prior and US mortgage applications surged about 17 per cent in the week to July 13 – that's about it. So looking at the day ahead we see very little data for Australia, NAB's June quarter business confidence index is about it and there is not really a lot for the rest of the region either. In the European session the major releases include things like the eurozone current account and UK retail sales. Finally, for the US we get jobless claims, the Philly Fed manufacturing index and existing home sales.

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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