SCOREBOARD: Italian verve

A decent rally on Italian bonds (10-year yield down 50bps to 6.88 per cent and the 5-year off 80bps to 6.4 per cent) and some good economic data out of the US saw equities push higher last night. It was a bit more mixed in Europe, although the European Commission, just to pep things up a bit, slashed its European growth forecasts to 0.5 per cent from the 1.8 per cent it was forecasting 6 months ago.

Growth looks like it will be slower sure, but the EC's action reminds me of what the IMF did after the GFC. Indeed, 2012 is a long way off and it doesn't pay to be premature in forecasting doom and gloom – as the IMF learnt. We have no partials, nothing of substance to base that forecast on and the narrative is too complex at the moment. Growth may be that low, but it may be substantially stronger. Investors should not get hung up on forecasts then, anyone's forecasts, at this point. Just getting the state of play right is challenging enough right now, without trying to guess the future.

So French and UK stocks fell about 0.3 per cent each, although German stocks were up 0.7 per cent (surging telcos and utilities). Overall, the news out of Europe was okay but it's not looking like the ECB will start the printing press any time soon, although this is the clear expectation of many. So a number of its members effectively hosed down such expectations – specifically prohibited in EU treaties. The Dutch central bank said that "we have gone pretty far in what we can do, but there is not much more that can be expected from us. It is now up to governments.” Another central bank board member (Praet) basically said that it wasn't the job of the central bank to intervene when there are doubts about the fundamentals of a country. Things are in a state of flux and I'll be honest in not having any expectations either way. The options for Europe, having screwed up so monumentally thus far, are rapidly dwindling and their decision-making process is clearly flawed – with no clear sign they have learned anything, expectations can't be high.

On the political front, Italy and Greece look like they are slowly getting to grips with their political crisis and a former central bank vice president, Lucas Papademos, looks set to run an interim crisis cabinet in Greece while in Italy, former EC commissioner Mario Monti looks set to run things if the Senate can pass austerity measures quickly. Then, on the question of a two-speed Europe that spooked markets yesterday, Merkel was trying to reassure markets that plans for a split were not afoot, suggesting "we have only one goal, that is to bring about a stabilisation of the eurozone in its current form.”

If that's the case, I would hate to see what eurozone politicians were capable of if they weren't working hard toward stability. No really, I mean if Merkel is still taking advice from the same people who brought us here (you geniuses you), then things aren't looking very good at all. Note that the spread of French to German bonds is pushing higher and hit a record 165bps last night (Italian spread over 500bps or so, but still not a good sign). This was probably due to a 'mistaken' ratings downgrade by S&P. Somehow, only a select group of clients were informed that France was losing its AAA rating. S&P deny that they are considering this and restated France's rating and stable outlook – interesting, or not, given past behaviour. In any case this whole episode was avoidable, the current contagion predictable given the course they so poorly chose. This was all made very clear to them, so it can't be a surprise and they've only got themselves to blame.

Across the Atlantic, Wall Street had a decent bid although it did fade from its highs (S&P500 was up as much 1.4 per cent), and failed to offset the losses from the previous session. Helping to boost sentiment was a 10,000 fall in jobless claims in the week to November 5 to 390,000. Continuing claims dropped nearly 100,000 to 3.61 million. Then the US trade deficit narrowed as exports rose 1.4 per cent in September and imports rose 0.3 per cent – also good news was a fall in import prices (0.6 per cent in October to be 11 per cent higher annually). The S&P closed up 0.9 per cent (1,240), with energy stocks leading the charge as crude pushed higher – WTI added 2 per cent to $97.8, while Brent was 1 per cent higher ($113.5). Otherwise, healthcare, telcos, consumer goods and industrials were all up over 1 per cent. Elsewhere, the Dow added 113 points (11,894), the Nasdaq gained 0.1 per cent (2,625), while our very own SPI is up 0.5 per cent (4,286).

In the forex space, the Australian dollar is currently at 1.0130, which is little changed from yesterday afternoon (two figure range), while the euro is up 45 pips to 1.3582, having traded just under a two figure range. The pound is then down 18 pips to 1.5906 and the yen sits at 77.69 – little changed from yesterday afternoon. Gold was then down smalls to $1758, silver shed 1 per cent, while copper was down 1.9 per cent.

On the debt side, US treasuries sold off, the 5-year yield up just over 3bps to 0.91 per cent and the 10-year yield up 6bps to 2.06 per cent so far. The 2-year did nothing and sits at a paltry 0.23 per cent. Australian futures then are currently off 4-5 ticks with the 3s at 96.57 and the 10s at 95.84.

In other news and data, the BoE kept rates unchanged and didn't print any more money this month although that is widely expected at some point. Then Bernanke made some comments last night, but didn't really say anything.

Today there isn't much out for Australia or New Zealand and in fact there isn't much out anywhere. This afternoon we see India's September industrial production figures and then tonight, the University of Michigan's consumer confidence report. That's about it.

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

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