SCOREBOARD: Losing momentum

End-of-quarter lethargy may be to blame for a poor showing on markets overnight, but data is still on the positive side.

Not a great session for risk in the end, although again we’re not talking any major news flow or anything – and what data was out, if anything, was slightly on the positive side.

End-of-quarter lethargy maybe. The final estimate of fourth-quarter US GDP was unrevised at 3 per cent so this was fairly neutral for markets. To recap, consumption was up 2 per cent, investment 6.3 per cent while government spending fell 4.2 per cent. Then US jobless claims were off 5000 in the week to March 24. Now at 359,000, claims are higher than expected (350,000) and revisions saw the previous week’s claims revised up to 364,000 (from 348,000). Still, jobless claims are trending down, and although the momentum seems to have tapered off somewhat, this fact is still a positive development. Continuing claims continue to improve and even after an upward revision to the past week’s data, these are a bit lower than expected at 3.34 million (3.35 million expected).

So it’s not really bad news, yet US stocks dropped from the open and at the low were down 1 per cent. As far as I can tell, the main factors driving this sentiment are rising concerns over Europe again, and expectations of a release of crude oil from strategic reserves – WTI was off 2.2 per cent ($103.1), while Brent fell 1.4 per cent ($122.4). So S&P came out and said that Greece will need to restructure its debt again and of course, some people have been out and about trying to whip up concern over Spain. Spanish and Italian bond yields did shoot higher overnight, with the 10-year yields up 14 basis points (5.46 per cent) and 11 basis points (5.21 per cent) respectively.

By itself, I wouldn’t have thought S&P's announcement was really groundbreaking stuff though. Maybe it was the fact that it coincided with some negative stock-specific news – Italy’s third-largest bank for instance posted a record loss and Europe’s second-largest clothing retailer missed earnings estimates. Whatever the case, in Europe the Dax fell 1.8 per cent, the CaC was off 1.4 per cent and the FTSE fell 1.2 per cent. In some cases here we are talking the biggest drop in three weeks. More broadly I don’t think we are seeing signs of heightening market stress. The ECB seems to have things under control and of course European finance ministers are widely expected to approve beefing up the firewalls this weekend – the details of which are already known. Clear positives.

So, back to the US, financials and energy stocks then led the S&P500 into its trough, although energy stocks recovered somewhat into the close, lifting the overall index off its lows to close 0.2 per cent lower (1403). Financials, telecommunications and consumer services ended up being the weakest links, but on the flipside, utilities, health care and basic materials eked out modest gains. The Dow for its part rose 19 pooints (13145), the Nasdaq fell 0.3 per cent (3095) and the SPI slipped 0.05 per cent. (4338).

As for Treasuries, they pushed higher, and that’s with a disappointing auction of 7-years. The notes stopped at 1.59 per cent and cover was at 2.72 which was a bit weaker than the average of 2.83. Still, the yield on the 10-year managed to fall 5 basis points (2.15 per cent), while the 5-year was down 4 basis points (1.01 per cent). The 2-year was down a basis point or so to 0.33 per cent. Aussie futures then did little. The 3s were up 2 ticks to 96.53 while the 10s were a tick higher to 95.955.

Finally for the price action, the Australian dollar bounced around but was little changed in the end. Trading on a 92 pip range, the dollar currently sits at 1.0377 up about 16 pips from 1630 AEDT. The euro traded almost on a big figure range and is down just over 30 pips from 1630 to sit at 1.3294, while sterling was 40 pips higher (1.5951) and yen was down to 82.45 from 82.61. Gold was little changed at $1661, silver rose 1.3 per cent and copper was 0.5 per cent higher.

In other news, and on the positive side, German unemployment fell to 6.7 per cent in March from 6.8 per cent, and unemployment itself fell 18,000. European economic confidence was little changed in March at 94.4 (average 99.8), with consumer confidence at -19 (average (-12) and industrial confidence at -7.2 (average -6).

Looking at the day ahead we see HIA new home sales at 1100 AEDT and then the RBA’s private sector credit at 1130 AEDT. In New Zealand we see building permits and that’s pretty much it. Elsewhere in the region it's worth looking out for industrial production figures out of South Korea (1000 AEDT) and Japan (1050 AEDT). Tonight, it’s worth checking on US personal income and spending data and the PCE deflator.

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

Follow @AdamCarrEcon on Twitter.

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