SCOREBOARD: Paint the town Beige

Global stocks were smashed despite stable US jobs data and an upbeat Beige Book.

Stocks were smashed overnight – in big moves on both sides of the pond, with the S&P500 down 1.4 per cent (1608), the Dow down 215 points (14,962) and the Nasdaq off 1.2 per cent (3401). In turn, European equities lost about 1.2 to 2.1 per cent. Bad session.

Oddly, there was nothing really driving it. It’s not like the economic news and dataflow was terrible or anything. I mean, the US jobs data was okay – a little softer at 135,000 than the 165,000 expected, but that’s still not a bad outcome. The ADP employment report isn’t a tier one indicator anyway. More to the point, other data was good – but not so good as to freak out traders and computer algorithms into thinking that the never-ending QE would actually end.

So factory orders were up 1 per cent, the non-manufacturing ISM survey rose to 53.7 from 53.1 and the Fed’s Beige Book was upbeat. The report, a collection of anecdotes from businesses in the 12 Federal Reserve districts, indicated that growth “increased at a modest to moderate pace since the previous report across all Federal Reserve districts except the Dallas district, which reported strong economic growth.”

It noted that “the manufacturing sector expanded in most districts” and that “residential real estate and construction activity increased at a moderate to strong pace in all districts. Commercial real estate and construction activity grew at a modest to moderate pace in most districts.” Further gains were noted on consumer spending and bank lending was noted to have lifted since the last report. All good and consistent with the acceleration, not a deterioration, in global growth that we are seeing in the numbers.

Now in price action elsewhere, we saw US Treasuries push higher (yields down) with the 10-year yield of about 3 bps to 2.12 per cent. Commodities were mixed but generally positive with crude up 0.4 per cent to $93.7, copper flat and gold up smalls – $6 to $1403.

Then in the forex space, the Australian dollar is little changed from late yesterday afternoon following the sell-off yesterday afternoon. Most think the Aussie dollar sell-off was a post-GDP, Australian dollar-specific collapse. I even saw one newswire, in what I can only assume was a joke, attribute the currency’s fall to the call of an economist. I don’t think this is quite right though.

After an initial sell-off, the dollar bounced back following the GDP figures and the idea that the market would move on any economist’s or bank’s call on any currency is just too ridiculous. No, it seems rather that the dollar weakening was a broader global issue: rising Japanese risk aversion and a repatriation of funds, partly in repose to disappointment over Shinzo Abe’s stimulus measures.

This was captured by the slump in Japanese shares and coincided with a strengthening in the yen (it’s at 99.02 from 100.27). The moves occurred around the same time. Otherwise, the euro is little changed at 1.3093, ditto for the British pound at 1.5406.

Bits and pieces otherwise – the International Monetary Fund has admitted to making mistakes in regard to the Greek bailout, suggesting it underestimated the damage austerity would do, and that its response came close to breaking its own rules.

For the day ahead, the SPI suggests we can look forward to a 1 per cent fall on the ASX, while for the data it’s all about trade at 1130 AEST. Tonight the key data includes German factory orders, the Bank of England’s rate decision , the European Central Bank’s rate decision and US jobless claims.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.