Equities either side of the pond spent most of the session bouncing around zero. A modest bid was the order of the day after some positive US data. European data – a 1.9 per cent slump in German factory orders for January – in contrast wasn’t that positive although markets overlooked that and the Dax closed 0.3 per cent higher, the CaC was up 0.5 per cent, while the FTSE100 rose 0.2 per cent. I suspect this reflects three factors. Firstly, that the fall in orders followed a 1.1 per cent gain in December. Secondly, because Spain managed to sell €5 billion of bonds (2, 5 and 10-year) with strong demand and lower yields – up to 30 bps lower. In fact in the secondary market, the Spanish 10-year yield was off 10 bps to 4.89 per cent and the Italian equivalent was 6 bps lower to 4.54 per cent. Finally, US data was generally quite good. Jobs data in particular.
Recall in the previous session, the ADP employment report showed 198,000 jobs created in February. Well, now jobless claims, at 340,000 in the week to March 2 (from 347,000), are at a five-year low. Not bad, and once again data that dispels (without any doubt) the Fed’s view on the economy. But then they have to justify why they continue to print money. Anyway trade data also out was okay, trade balance came in at $44.4 billion from $38 billion with exports down about 1 per cent and imports 1.8 per cent higher.
As I write then, US stocks are 0.1 to 0.2 per cent higher (S&P at 1543, Dow at 14,325, and Nasdaq at 3225) which isn’t great. But it does bring the Dow to another record high. Yep that’s right – to infinity and beyond. No wait, that’s QE. Anyway not a bad session all considered. Commodities for their part were a little higher – gold up smalls to $1575, copper 0.7 per cent higher, but crude put in a good effort, rising 1.1 per cent to $91.48.
There was more action on the rates side and most of that was due to the jobs report. Payrolls are tonight and so far the data is pointing to a strong outcome. As I write, the US 10-year Treasury yield is up 6 bps to 1.994 per cent, the 5-year is then 6 bps higher at 0.85 per cent, while the 2-year is at 0.25 per cent. Aussie futures were then 6-8 ticks lower on the 3s (97.08) and 10s (96.51).
In forex land, the euro shot higher after the ECB held rates steady. It’s not that the market was expecting any action mind you, it’s just that the bank appeared to rule out any further action – and that’s with a downward revision to growth and inflation. It now expects the eurozone economy to contract 0.5 per cent this year (it expected -0.3 per cent in December) and inflation to fall to 1.6 per cent this year and 1.3 per cent next. While appearing to rule out further easing, Draghi did suggest that rates would remain low and liquidity ample until markets and governments had time to fix things. So, weighing it up, the euro was almost 120 pips higher than at 1630 AEDT (1.3106), the British pound was 20 pips higher (at 1.5019 although no action or commentary from the BoE), while Australian dollar is about 25 pips higher at 1.0276. The yen weakened further and sits at 94.9 from 93.88.
Looking at the day ahead, the SPI suggests our market will rise 0.4 per cent. In terms of data we get Chinese trade stats today (at 1300 AEDT, although they could come out over the weekend) and then tonight German industrial production. The main release is payrolls obviously, and the market looks for gains of around 160,000. The unemployment rate is forecast to remain at 7.9 per cent.
Have a great weekend.
Adam Carr is a leading market economist.
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