SCOREBOARD: Market ramble

Markets did little overnight in the absence of major data, but there were positive signs for Spanish bonds.

Markets found it difficult to find direction in trading overnight given there wasn’t really any major news or information out. Indeed, much of the market chatter in the press concerned Greece – nothing new, mind you. Whatever the noise, all we really know is that discussions between Greece and her creditors continue, and that most parties remain confident a deal will be struck.

Elsewhere, some of the European PMIs seemed to improve. The German manufacturing (50.9) and services (54.5) index both pushed higher and sit over 50, which suggests Germany may avoid a recession. Then again, this is something the IFO survey (well respected business survey) has been saying for some time. The PMIs for Europe more broadly pushed higher with the composite index now at 50.4 from 48.3. Other than that though, industrial orders fell 1.3 per cent in November which was better than expected and comes after a 1.5 per cent increase the month prior.

I guess the really good news is that the Spanish continue to raise money at much lower yields than what they have in the past. They sold €2.5 billion in bills overnight and saw demand topping €13.5 billion – obviously very strong. Yields on the 3-month paper were 1.285 per cent and 1.847 per cent for 6-month paper, which compares to yields of about 5 per cent only a couple of months ago.

So with little to go on, European equities slipped a bit, the Dax down 0.27 per cent, the CaC off 0.47 per cent while the FTSE was down 0.53 per cent. Euro, having hit a low of 1.2954, managed to find a bid and is sitting about 20 pips or so higher from yesterday at 1630. It was a similar story for Australian dollar, which hit a low of 1.0428 before bouncing back to sit little changed at 1.0479 (97 at 1630). Sterling had a much better session of it, shooting about 150 pips higher as the UK budget gap narrowed more than forecast – from £15.1 billion to £10.8 billion (£12.1 billion expected).

Across the sea, Wall Street is mixed and little changed as I write. US Treasuries for instance are up only 2bps on the 10-year yield (8bp range), the 5-year yield is unchanged at 0.8994 per cent (2bps range), while the 2-year yield is up under 1bp to 0.2386 per cent. There was a 2-year Treasury auction overnight which was well bid. $35 billion was sold off and $131 billion in bids were received. Cover was then at 3.75 which is above the average of 3.4 last year. Naturally enough, Aussie futures haven’t done much either. 3s sit at 96.73 (unchanged) and traded on a 5 tick range. 10s are at 96.020 – down almost 2 ticks on a 6 tick range.

As for equities, they were belted on the open, with the S&P falling 0.8 per cent to a low of 1306 before a bit of a bid developed (down 0.2 per cent at the time of writing). Telcos, utilities and energy are the key deadweights, the latter being hit by a fall in crude, down 0.5 per cent on WTI ($99) and 0.4 per cent on Brent ($10.2). Outperforming that are tech stocks and consumer services, just in positive territory. The Nasdaq is then flat (2784), the Dow is off 46 points (12662), while our own SPI is up 0.2 per cent (4199).

In other news and data, the IMF downgraded world growth in 2011 and 2012 from about 4 per cent and 4.5 per cent to 3.3 and 3.9 per cent respectively (I expect growth between 3.75 per cent and 4.75 per cent for both years).

That’s pretty much it though. Today obviously we get the fourth quarter CPI numbers for Australia. The issue is whether the drop that we saw in third-quarter core inflation was anomalous or not. One print certainly didn’t tell us very much, especially as it coincided with fairly significant changes to the CPI methodology. If it wasn’t, then that certainly clears the way for further cuts. If it was, then the RBA has a major problem on its hands having just cut 50 basis points – premature in my view given the above. The consensus is that headline inflation will rise 0.2 per cent (me at 0.4 per cent) while core is expected at around 0.5 per cent.

Other than that, we see the German IFO survey tonight, followed by UK fourth quarter GDP. For the US, we get pending homer sales and a house price series. Also watch out for the RBNZ decision tomorrow morning at 7am and the FOMC announcement just prior (no changes expected).

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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