SCOREBOARD: House music

Housing starts in the US grew for May, adding to the sector's momentum, while commodities took their ease as equities rose.

With little in the way of news flow, global equities pushed higher again overnight. More so in the US where we saw the S&P up about 0.8 per cent (1652), the Dow 138 points higher (15318) and the Nasdaq 0.9 per cent higher (3482) – led higher by industrials, consumer services and telecommunications.

It could be that the market is less concerned about the Fed engaging a near-term tapering or maybe happy in the knowledge, even if there was some, that any tapering would be small. Not sure and there really wasn’t much hard-hitting news or dataflow otherwise – although what was out was good. In the US, housing starts were certainly positive, rising 6.8 per cent in May. This was weaker, however than the 11.4 per cent gain that was expected and follows a 15 per cent fall in April. Fact is though that starts are on the way up and the US housing market is picking-up, in some cases rapidly.

Over in Europe we saw the German ZEW survey which pushed modestly higher, the expectations index rising to 38.5 from 36.4, although the current situation index slipped to 8.6 from 8.9. The thing is, the average is about 20 and -13 respectively so this shows German investors are quite optimistic about things. Having said that, European equity gains were more modest with the Dax only up 0.2 per cent, the CaC actually fell 0.1 per cent, although the FTSE100 was 0.7 per cent higher.

In other price action we saw some solid falls in the commodity space, the inverse relationship with equities well and truly in place. Only crude rose, 0.8 per cent to $98.6, but all the metals were weaker – gold down $16 to $1367, silver was off over 1 per cent and copper fell 1.4 per cent. In the FX space, the euro was up 60pips or so, AUD was little changed at 0.9485, GBP was about 20pips lower while the yen is at 95.3 from 94.8 and there was nothing note worthy in the Treasury space either – the US 10yr yield up smalls to 2.18 per cent.

Other than that there was a bit of other data out on the inflation front this time for both the US and the UK. In both countries the data showed inflation accelerating – to 1.4 per cent from 1.1 per cent in the US, although core inflation is higher at 1.7 per cent, which in the old pre-GFC days was about where the Fed would start taking action to prevent inflation pushing much higher, especially given the improved economic outlook. In the UK it’s worse, inflation has been above target for many years and in May it shot up to 2.7 per cent from 2.4 per cent. The retail price index, used for government purposes like pensions calculations etc., is much higher at 3.1 per cent.

I probably should mention the RBA’s minutes as well. Nothing new. It’s the dollar and this idea that the nation needs to rebalance. They stand ready to cut again, if only slightly less keen at the moment. There are two very good reasons they should hold steady. Firstly, rate cuts are hurting confidence as people freak out about the economic outlook. Secondly, and not unrelated to the first point, a weaker AUD isn’t generally associated with economic strength, only weakness. When our economy is strong the dollar is strong. It’s all tied together and global sentiment toward Australia has soured enormously as a result of this campaign to lower the dollar. And I don’t think that’s debatable – the evidence is unequivocal – there is only denial and lies. For mine, this is sheer stupidity from policy makers if ever I’ve seen it. A case of the cure being worse, much worse than the ‘disease’.

For today the SPI suggests our market will rise 0.7 per cent. Then in terms of news and data there isn’t much. We have Westpac’s leading index and DEWRs skilled vacancies index. Neither major. Tonight, of course, it’s all about the FOMC decision (4am our time).

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