SCOREBOARD: Italian job

With so much going on – the Italian election, the sequester – it's difficult for anyone to figure out what's what, and that's reflected in last night's price action. In Italy the talk is of a hung parliament, but no one really knows at this stage. Projections suggest that Berlusconi will take the Senate, while the centre left will win the lower house.

As it was though, European stocks finished higher, with the Dax up 1.5 per cent, the CaC up 0.4 per cent and the FTSE100 up 0.3 per cent. Even stocks in Italy finished the session up 0.7 per cent. Fair to say they had been higher – much higher in Italy, where the key index was up 4 per cent at the high.

French stocks in turn were over 2 per cent higher and the Dax was 2.6 per cent higher. The offer came on after news filtered out that Berlusconi might take the Senate. Everyone seems nervous of that outcome and his anti-austerity platform. The fact is though, the market still ended higher. You can see the same pattern on the euro, which shot up 120 pips or so as stocks rallied, but then gave back all of that and then some (over two big figures in total) on the Berlusconi news. As it is, the euro is off 100 pips from yesterday at 1630 AEDT.

In the US, this news of Italian electoral uncertainty spooked investors and the offer was pretty much on from the open. With an hour left to trade stocks are still in the red with the S&P500 down 0.8 per cent (1503), the Dow off 68 points (13,931) and the Nasdaq off 0.3 per cent (3152). A much worse performance than in Europe, but then they've also got the sequester over there. Should be a hoot – still no attempt at not going over this cliff.

Now with all of this going on it was interesting to note the rebound in precious metals. Gold pushed higher, posting its biggest one day gain since January 10. Why? Gold was off some 12 per cent or so from last year's peak, and it had hit a key support. So there were some technical reasons, as well as plenty of news about short covering and the like on the view that gold had sold off too far.

Other metals also got a reasonable boost – silver was up 1.9 per cent and copper 0.3 per cent. Crude in contrast fell 0.1 per cent to $92.78.

On the rates side we saw the 10-year treasury bonds rally quite hard on Italy fears, the sequester etc. The yield is down 7 bps as I write to 1.896 per cent, which is the lowest yield since late January. The 5-year in turn was off 5 bps to 0.776 per cent. The 2-year was at 0.25 per cent.

Finally for the price action, the British pound is 60 pips higher at 1.5184 and the yen strengthened a bit, falling from 94.02 to 92.36, although prior to that it had weakened quite a bit as it became clear the government was going to appoint a dovish central bank governor. Apparently, Japan's prime minister is expected to nominate a former finance ministry official as head of the Bank of Japan. Among his other credentials, he was responsible for currency policy in the early 2000s when there was a strong effort to drive down the yen.

The Australian dollar was little changed at 1.0282, and there isn't much to deal with for the Aussie market today. The SPI suggests our stocks will fall 0.7 per cent; then we have a speech from a Reserve Bank assistant governor at 0815 AEDT but really not much else. Tonight the main data is from the US and includes house prices, consumer confidence, new home sales, the Richmond Fed manufacturing index and Ben Bernanke's testimony to the Senate.

Enjoy…

Adam Carr is a leading market economist.

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