A report on oil demand saw crude and oil stocks jump, while European markets managed a bid despite the EU summit being yet to kick off.

Day two and US stocks have pushed higher again, even European markets managed a bid – and the EU summit hasn’t even started! As to why? Well most of the gains appear to be due to much better-than-expected US data. Durable goods orders for instance shot up 1.1 per cent in May and core orders were even better than that spiking 1.6 per cent, admittedly after a 1.4 per cent fall the month prior. Then pending home sales came out showing a fairly sizeable jump of 5.9 per cent in May.

Risk on! Kind of, and in Europe, the Dax rose 1.1 per cent in the last hour and a bit of trading (to close 1.5 per cent higher). It was a similar story for the CaC, which ended 1.7 per cent higher while the FTSE was up 1.4 per cent. At this point, the S&P500 was about 0.6 per cent higher with energy stocks leading the charge. And that’s because of a decent jump in crude – 1.4 per cent higher to sit at $80.4.

In addition to the positive economic data, the EIA also came out with a report showing US oil demand rising at a solid clip. There’s heaps of PR around at the moment about how – hang on, did we forget to mention that the world is actually swimming in oil – and that’s helped see prices lower. But for last night that was overlooked. Fair enough, oil has come off $30 since a peak in February and looks very oversold. It’s down near where it was during Armageddon time late last year – you know US double dips and Europe imploding. Anyway financials and tech stocks also did well and at the bell, the S&P was up 0.9 per cent (1331). The Dow (12627) and the Nasdaq (2875) were a touch below that at 0.7 per cent a piece and the SPI, our beloved SPI, also looks to have increased 0.7 per cent (4041).

Over in Europe, the summit kicks off tonight and plans are still being worked on, apparently, by EU officials, to use bailout funds to buy Spanish and Italian bonds. The Spanish noted yesterday that they couldn’t deal with high yields for too long and they reckon they’re not alone. The Spanish PM said "We can't finance ourselves at current prices for too long…There are many institutions and financial entities that have no market access. It's happening in Spain, it's happening in Italy and in other countries, that's why this is a crucial issue".

It shows the circularity of Europe’s problems though and why it’s just so insane – why their politicians view financial markets as the enemy. Spain has one of the best debt-GDP ratios going around – even accounting for bank bailouts – most of whom aren’t even close to collapse. Intrinsically, fundamentally, Spain has no problem that it couldn’t have dealt with in a rational market. Enter some flawed assumptions (usually about contingent liabilities) and sloppy analysis and bang – a crisis. A kind of Dutch tulip mania in reverse – and there is nothing sane or rational about it.

The problem Europe faces is how to reverse that. How do you instil some sanity back into markets? Get players to focus on fundamentals rather than fear? Some of the world’s best minds reckon the way to do that is to print money and increase debt – ‘best minds’. Well there was no luck last night and Spanish bond yields pushed a little higher (3bps to 6.88 per cent) having initially eased off a bit (6.78 per cent). The Italian 10-year rose about 8bps to 6.2 per cent.

Other than German bunds (10-year yield up another 6bps or so to 1.57 per cent), bonds elsewhere didn’t do much. In fact US Treasuries did almost nothing, trading on a 4bps range they ended largely where they were at 1630 AEST time. The 10-year yield is at 1.622 per cent, the 5-year at 0.7188 per cent and the 2-year is at 0.305 per cent.

Finally for the price action, the Australian dollar is a touch higher at 1.0078 ( 20pips or so), the euro is then down about the same to 1.2467 while Sterling and yen sit at 1.5566 and 79.74. Gold is then little changed at $1574 copper is up 0.9 per cent in New York trading.

Not too much else to report. German consumer prices fell 0.2 per cent on the back of declining energy prices, the annual rate falling to 2 per cent from 2.2 per cent. Italian business confidence then rose, the index up to 88.9 from 85.5. So, looking at the day ahead, there is a bit of Japanese retail data and then for OZ, HIA sales at 11am. This afternoon we see some German employment data and then the EC business climate indicator is out tonight. US data includes the final estimate of first-quarter GDP (1.9 per cent expected) and of course we also get initial jobless claims.

That’s about it, have a great day…

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.


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