SCOREBOARD: Merkozy pause

There wasn't a lot in the way of major market moves overnight as we're only just coming out of the holiday season and it's not like there were any major catalysts for a move. I get the sense that everyone is just patiently waiting or still trying to determine the tone.

Europe, as we know, will be critical in determining that tone, but the ‘Merkozy' meeting last night didn't really provide anything of substance. German Chancellor Angela Merkel expressed confidence that an agreement on European treaty changes could be reached by month's end and both leaders indicated new measures to promote growth may be enacted (as part of the overall strategy to stabilise things). Note that both leaders seem to be in favour of imposing a financial transactions tax.

That was pretty much the main news flow though. Data-wise, things were mixed with German industrial production falling 0.6 per cent in November after a 0.8 per cent increase in October. Then exports rose 2.5 per cent in that month after a 2.9 per cent fall the month prior.

We didn't see anything out of the US for most of the session, which is why treasuries traded on narrow ranges (5 to 6bps on the 5-year and 10-year) and haven't changed much from yesterday. When you are talking yields at record lows though, I guess it is interesting just to note that investors haven't lost their appetite. In any case at about 0700 AEDT the US consumer credit numbers came out and blitzed market expectations for a $7 billion increase to instead rise about $20 billion, which is the biggest gain in around 20 years I think. There is a consistent theme coming out of the US – the consumer is stirring and when you consider just how wealthy US consumers are, that's a good thing for the globe. Not much of a market reaction though and as I write, the 2-year is at 0.24 per cent, the 5-year is at 0.854 per cent and the 10-year is at 1.96 per cent – all little changed from yesterday at 1630 AEDT. Australian futures in turn were little changed – the 3s at 96.88 and the 10s at 96.2.

Wall Street pushed marginally higher after the figures, but they still only closed up smalls (the S&P500 gained 0.23 per cent to 1,281, the Dow added 0.26 per cent to 12,392 and the Nasdaq inched 0.09 per cent higher to 2,676). Industrials, energy and consumer goods were the key outperformers, with tech and telcos lagging. Elsewhere, European stocks were all weaker – the Dax off 0.7 per cent, the CaC off 0.3 per cent and the FTSE off 0.7 per cent, but our own SPI is 0.4 per cent higher at this stage.

In the forex and commodity space we saw the Australian dollar push up about 60 pips or so to 1.0237 against the US dollar. Euro was about 40 pips higher to 1.2765, while sterling and yen were little changed at 1.5455 and 76.86, respectively. Otherwise, gold was off a few bucks to $1607, silver was up 0.3 per cent and copper was down 0.5 per cent. Crude was off 0.3 per cent on WTI ($101.3) and 0.8 per cent on Brent ($112.12).

That's largely it. Looking at the day ahead, it's building approvals for Australia today where the consensus is that approvals will increase by about 6 per cent. Would be good if it wasn't for the 25 per cent drop in the two months prior. I'm reasonably spooked by this, but it's not the price of money that is the problem here. We'll see what happens. New Zealand also puts out building permits at 0845 AEDT today. Elsewhere, Chinese trade data is out today at some stage (haven't seen a time yet but usually lunchtime here) while tonight, just look out for US wholesale inventories and a bit of Fed speak from Pianalto and Williams (voters in 2012).

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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