Scoreboard: Merger attraction

Wall Street hit a fresh record as investors shrugged off recent weather-distorted data and M&A optimism grew.

Not that there was much in the way of major news or dataflow, but the S&P500 shot up to a new record overnight. The Nasdaq too, by the looks. Most investors are obviously looking through weather-distorted data and as I mentioned the other day, optimism is building on deal activity. Perhaps that was part of last night’s optimism, as a there was a bit more action in the space with RF Micro announcing it will merge with TriQuint. Takeover action in the menswear space would have added to the excitement as well.

But that was it in terms of US news and data – there was a bit out of Europe too and it certainly wouldn’t have hurt sentiment. Specifically, the German IFO survey rose to 111.3 in February from 110.6. The index is well above average and point to an ongoing acceleration in growth.

Wall Street’s major indices were up 1.1 per cent with an hour left to trade, led by a surge in energy stocks which are up over 2 per cent. Industrials health and financials also put in strong performances with basic materials and telecommunications lagging. Over in Europe, equities had a decent session, but they underperformed the US. The Dax rose 0.5 per cent, the CaC was 0.9 per cent higher and the FTSE100 was 0.4 per cent higher.

Forex saw the Australian dollar spike back over 90 US cents to be at 0.9044 as I write. This is up some 70 pips from 1630 AEDT yesterday as shorts increasingly exit the trade. It’s too hard to push now as the PR for a lower dollar is increasingly unbelievable. When you reach that point, the money is in being long. The rally so far looks to be fairly Aussie specific as well, as neither the euro (flat at 1.3737) or British pound (up 20 pips to 1.6666) did much. The yen currently trades at 102.49, unchanged from yesterday.

Commodities were generally stronger – that is, except copper, which fell 0.8 per cent. Elsewhere crude was 0.5 per cent to 0.7 per cent higher on WTI ($102.7) and Brent ($110.6), respectively, while gold rose $14 to $1337 and silver was up 1.1 per cent.

Rates generally saw modest selling action. On the US Treasury front the 10-year yield was up just over 2 bps to 2.748 per cent, the 5-year yield is at 1.55 per cent and the 2-year at 0.32 per cent. Aussie futures were off one (10s at 95.8785) to two ticks (3s at 96.98).

Elsewhere, European inflation – well, the final estimate for January – was steady at 0.8 per cent year-on-year. The only US data was minor – the Chicago Fed National Activity index, and this slipped to a reading of -0.39 from -0.03.

In markets today, it’s another quiet one in terms of dataflow – domestic balance of payments data at 1130 AEDT. Nothing out really in our session but the SPI suggests our stocks will be up 0.8 per cent in any case. Not quite to record territory like we’re seeing in the US and Europe, but then again business leaders over there tend to talk their country up, not down like they do here. There are also a number of global investment banks running a sell Australia message too – but that of course is buy signal.

Tonight the key dataflow includes the breakdown of German GDP, while US data is mainly concerned with house prices. In addition to that we also see the Richmond manufacturing index and US consumer confidence for February.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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