SCOREBOARD: Market limbo
World equity markets were mixed overnight as a dearth of information left investors directionless.
One of the more interesting features of the news flow last night came from the ECB who said they didn’t buy any European bonds again last week. That puts a dampener on the view that Spanish yields would have surged higher in the absence of central bank buying, but there you go. As it is for last night, Spanish and Italian yields eased somewhat, the 10-year Spanish yield at 6.41 per cent or down about 12 basis points for the session and almost 30 basis points from its recent peak. The Italian 10-year was at 5.66 per cent, which is down about 7 basis points overnight and about 150 basis points or so lower than a peak in early 2012. As for the major US treasury notes, they sold off a bit, but it was nothing in the grand scheme of things. The 10-year yield for instance was up to 1.52 per cent, or 4 basis points higher, than yesterday afternoon, while the 5-year is at 0.67 per cent or almost 5 basis points higher. The 2-year yield was then at 0.25 per cent. It’s certainly been a remarkable rally in global bond markets – the US 10-year down some 90 basis points since a March peak.
In the forex and commodity space we saw crude rise for the first time in about a week with WTI up 1 per cent to $84.1. WTI is off about $26 since a peak in February and is at its lowest point since October last year. Brent was up 0.4 per cent to $98.86. as for metals, gold was relatively flat at $1618 while copper rose 0.5 per cent. The Australian dollar then pushed higher, some 70 pips (since 1630 AEST) in largely one way trade to 0.9726, following the euro higher which was up about 80 pips or so to 1.2497. Sterling was then 20 pips or so higher at 1.5383 while yen sits at 78.36.
There wasn’t really much else. We saw European PPI moderate a bit given the fall in oil. In April, the index was flat to be 2.65 higher annually.
So for today’s calendar we have the Australia current account at 1130 AEST along with the public spending figures. Both will be important feeds into this Wednesday's GDP numbers which so far aren't looking too bad – maybe 0.5 to 0.7 per cent (I’ll have a firmer number after today’s data).
The RBA follows at 1430 and while the futures market is fully priced for a cut only around half of analysts expect it. With all the hysteria I’m sure a few more have joined their ranks and they may well be right. Recent decisions taken by the board suggest members tend to respond more to the news of the day rather than any reasonable assessment of the underlying economic data, so anything could happen. The news is all about stall speed growth in the US, Chinese growth slowdowns and the eurozone imploding. It will be lost on them that the news cycle is stuck on repeat and that nothing ever comes of it. So they could very well cut, notwithstanding the fact that these fears have proven to be be misplaced time and again. Those economists spruiking them have been repeatedly wrong – they have no credibility. The US isn’t at stall speed, the recovery continues at a decent clip, etc, etc, the eurozone is unlikely to implode and the fact is, Chinese growth isn’t all that slow.
Tonight, it’s worth watching out for eurozone retail sales, German factory orders, the BoC decision and then we also see the non-manufacturing ISM survey from the US.
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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