SCOREBOARD: Housing party

Pretty much everything rallied last night – bonds, equities, commodities – and so it's difficult to categorise last night's moves in the way we've become accustomed. Risk on, risk off. It was both you see. It's almost as if the Fed was printing more money. As it is for last night, markets were given a bit of a boost by a 4.1 per cent gain in US pending home sales for March. It's not that this is a particularly fantastic indicator or anything, but think of the environment. Corporate earnings have smashed expectations. The Fed then comes out and upgrades its growth outlook (to the extent that there is a collective outlook, but you know what I mean) we've seen strong business investment, strong consumer spending, etc – the main weak link being the housing sector. So with all that in mind, investors are very sensitive to any sign the housing market is turning or picking up.

The S&P500 saw steady bidding action through the session and managed to close up 0.7 per cent (1399) at the bell, which caps off the biggest three-day gain in at least a couple of months. Telecoms, consumer services and financials were the key outperformers, although most stocks except health care and basic materials were higher. The Dow rose 0.9 per cent (13204), the Nasdaq was 0.7 per cent higher (3050) and out SPI managed to increase 0.6 per cent (4407). Gains probably would have been better had it not been for a disappointing jobless claims report. Claims fell 1000 to 388,000 in the week to April 21, but they were expected to fall to 375,000. That is a bit of a pick-up overall then relative to February and March (claims around 365,000), but claims at these levels are still consistent with strong jobs growth. Talk about the jobs slowdown is out of line.

As for those commodities, they pretty much pushed higher across the board, but we're not talking huge gains. Gold for instance was up about $9 to $1656 and copper rose 2 per cent. There were modest gains on crude with WTI up 0.3 per cent to $104.4 and Brent up 0.6 per cent to $119 and these are gains without the benefit of a weaker US dollar. Indeed the dollar index was little change overnight which explains why the Australian dollar was little changed at 1.0385 (40 pips range) and also why euro was little changed for much of the session, although there is some selling pressure at the moment as US dollar is bid such that at 1.3208 as I write, euro is off about 50 to 60 pips from yesterday afternoon.

In the fixed income space, US treasuries rallied as mentioned after strong bidding at a seven-year auction ($29 billion worth with cover at 2.83) with the 10-year yield down about 4 basis points to 1.94 per cent. The 5-year yield then fell 3 basis points to 0.83 per cent while the 2-year was down just under a basis points to 0.258 per cent. Aussie futures then rose 2 to 3 ticks a piece to 96.96 on the 3s and 96.35 on the 10s. It's probably worth a quick look over at Spanish and Italian bonds as well and here things seem to have settled a bit. The 10-year bond yields were moderately higher – a few basis points here or there to 5.83 per cent and 5.64 per cent which is up from March for sure (80 basis points or so), but realistically they've been range trading since earlier in the month, and look to have settled.

Not really much else out overnight. There was some data out of Europe showing CPI was stronger than expected in April, rising 0.2 per cent in the month (0.1 per cent expected) to be 2.2 per cent higher annually (from 2.1 per cent). Also we saw the European business climate indicator weaken to -0.5 in April from -0.3 (the average is 0).

So looking at the day ahead, we see Japanese industrial production and inflation figures this morning, and then tonight we see the first estimate of first quarter US GDP. The market looks for a rise of 2.5 per cent this quarter after a 3 per cent gain in the fourth quarter.

And for those asking, no I certainly haven't forgotten about this week's CPI numbers, but I'll talk about them and the implications for policy on Monday next week. We have much to discuss.

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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