SCOREBOARD: Lending boost

Financials pushed the US market higher after a Fed report on rising loans, while Europe eyed lower rates and less austerity.

In the afterglow of the strong jobs report, US stocks pushed new highs – well on the S&P500 – led by financials after a Fed report showed rising loan growth and loosening lending standards.

Banks surged on this and some of the larger ones had great gains – the Bank of America was up nearly 8 per cent at the high, JP Morgan was also up. Elsewhere we saw strong gains in energy and tech (Nasdaq up 0.4 per cent to 3392), with the former getting a boost from only a modest gain in crude –  up 0.2 per cent to $95.8 ( 5 per cent or so for the last three sessions).  The Dow was otherwise off for the session, falling 5 points to 14968.

There wasn’t much in the way of exciting news otherwise and it was the same over in Europe. Stocks there had a more sluggish session, and the major indexes were modestly weaker – 0.1-0.2 per cent. Nothing too much to drive it, the final estimate of the European PMIs confirmed weakness in the economy, but then that’s hardly news to anyone and the survey isn’t really of much use anyway.

Then we saw some commentary from the ECB head Mario Draghi, who reiterated that the ECB would cut again if needed to 0.25 per cent from 0.5 per cent. This had a solid impact on euro which dropped about 50 pips after to a low of 1.3056 (the euro is 30 pips lower from 1630 AEST though to 1.3074). And if you throw in some commentary from the French finance minister, who said that the era of austerity is over, you can see where Europe is headed. To the Mad Hatter’s party over in the US. The French want to delay their budget targets for two years, Germany is saying one year and German Chancellor Angela Merkel reminded European leaders, via a talk with some high-school students, that European governments have signed binding agreements to limit their debt and contain budget deficits.

Not much in the price action apart from that. From 1630 AEST yesterday afternoon the Australian dollar is down 20pips to 1.0253, while sterling is down about the same to 1.5540 and yen is at 99.34. Otherwise on rates, yields continued to push higher with the 10-year up another 3 bps to 1.76 per cent, while the 5-year is 1bp higher to 0.74 per cent and the 2-year is at 0.22 per cent.

That’s it for last night’s session and so a quick word on the Australian retail sales figures that we saw yesterday. The numbers show strong momentum in sales growth for the start of the year, with the usual caveat that they simply aren’t any good as an economic indicator. But they get a lot of press and many economists seem to rely on them – a trap for young players. Anyway, that sales fell 0.4 per cent in the month (nominal growth) isn’t yesterday’s story - that fall follows gains of over 1 per cent in the previous two months. Volumes are the real story and they show very strong sales growth of 2.2 per cent for the quarter in a further sign that this economy is doing very well. Don’t forget that robust consumer spending has been the key driver of economic growth over these last few years and all the signs suggest that spending is actually accelerating.   

For today we can expect our market, according to the SPI, to rise 0.3 per cent. Other than that we get the Reserve Bank’s rates decision at 1430 AEST. Given the surge in stocks, the strong gains we saw in US jobs and the very strong gains in retail sales for the March quarter – not to mention pick-up in house prices –  it would be an ‘interesting’ decision to say the least if they cut. But they’ve made ‘interesting’ decisions before and the key driver of this easing cycle – pressure from government and some business groups – hasn’t changed. In addition to that we saw March quarter house prices and some trade figures, while tonight all we get are German factory orders and US consumer credit data.

Have a great day…