SCOREBOARD: Old-school reaction

A spate of positive US economic news saw Wall Street move higher, despite implications for the longevity of QE.

No tantrums to be seen last night and there was even barrage of good-bad news to boot (good economic numbers are bad for QE) - and the markets didn’t completely collapse! This game is getting too hard. First the market sees good news and panics. Then, and like last night, it sees good news and cheers go out. Go figure. Hard not to cheer about it I guess, unless you are part of the undead army of zombie pessimists in Australia.

But check it out - in the Great Land of the Free - or not, depending on your view - we saw durable goods orders surge in May, up 3.6 per cent for the month after a rise of the same magnitude the month prior. This is great obviously and a good sign of surging confidence - when people and business feel confident they buy generally more expensive and discretionary ‘durable goods’. Complementing that, consumer confidence, as measured by the conference broad, rose a solid 7 points in June to 81.4, which is well above the average recorded in 2012 of 67 and the low point over the last 12 months of 58. Finally, new home sales surged 2 per cent in May after a 3 per cent gain in April, and US house prices in the 20 biggest cities rose another 1.7 per cent in April (12 per cent higher year-on-year). Don’t forget some of the annual gains in these cities are approaching 20 per cent and hitting new records.

That’s quite a mouthful for the market just there - sweet and delicious - and for once there was an old school market reaction to it - stocks and commodities up. At the bell we saw the S&P (1588) and Nasdaq (3347) up 0.95 per cent and 0.93 per cent and the Dow put on about 100 points (14,760). By sector gains were broad based with telecommunications, financials, utilities and energy outperforming - although crude itself was flat ($95.2).

Elsewhere, for the price action, bond yields pushed higher and the US 10-year treasury now yields 2.61 per cent, which is about 11 bps higher than at 1630 AEST yesterday afternoon. The 5-year yield is almost 10 bps higher to 1.49 per cent, while the 2-year is 54 bps higher at 0.42 per cent. In the forex space, the Australian dollar is off smalls at 0.9252, the euro is about 40 pips lower at 1.309, British pound is 30 pips lower (1.5424) and the yen is at 97.85 from 97.55.

There were only a few other bits and pieces. Not much news in Europe, stocks there outperformed though, with the major indices up 1.2-1.6 per cent. Then, and following some panic over a credit crunch in China, the PBOC said that safe guard stability and allow liquidity to ease - following ‘seasonal’ and ‘emotional’ factors. Then we had a speech from the Dallas Fed president urging a break-up of the biggest financial institutions and suggesting a restructure of too big to fail banks, so that any unit of a bank that is in trouble could be subject to a speedy bankruptcy process. Even after Dodd-Frank he suggested that “any of these megabanks, given their systemic footprint and interconnectedness with other large financial institutions, could threaten to bring down the economy, again.” He also said that the implicit government guarantee for the biggest banks was an injustice, which allowed them to take excessive risks. Finally, a financial transactions tax that was set to be introduced in countries like Germany, France and a handful of other EU countries on January 1, has been delayed (six months at this stage).

Looking at the day ahead, the SPI suggests our market will rise about 0.8 per cent, otherwise there is no data for Australia today and not much for the region more broadly. Tonight we get the final estimate of first-quarter US GDP (expected unchanged at 2.4 per cent) and the BoE’s financial stability report.

Hope you 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.