Scoreboard: Presidential lag

Markets were subdued after the President’s Day holiday and mixed data from Germany and the US.

Coming back from the President’s Day holiday, US punters didn’t feel like doing too much with equities and it was a fairly subdued session. Most of the action was in other markets. Equities themselves were largely flat around the globe, mixed data neither adding nor detracting to that tone. The key release overnight was the German ZEW survey (a survey of investor sentiment). This showed a mixed outcome, with the current situation index spiking to 50 from 41.2 – well above average – although the economic sentiment index fell to 55.7 from 61. Still well above average, but of course the momentum is all wrong.

Global equities were mixed on both sides of the Atlantic. On Wall Street the S&P500 is hovering just above zero at 0.2 per cent (1842). The Dow in contrast is off 10 points (16,144) although the Nasdaq is up 0.7 per cent (4274). By sector, health, energy and tech stocks outperformed, while telecommunications and consumer stocks weighed. Over in Europe, the Dax was flat, the CaC was off 0.1 per cent and the FTSE100 rose 0.9 per cent.

Rates put in a decent rally overnight. The yield on the US 10-year Treasury note fell a decent 4 bps to 2.708 per cent. The 5-year note is at 1.47 per cent and the 2-year at 0.298 per cent. Aussie futures rose about three ticks a piece – 3.5 for the 10s (95.910) and the threes at 96.99.

Forex moves saw the Australian dollar little changed at 0.9035. The session low was just above 90 US cents, although that didn’t last long with buyers coming straight back in. The euro pushed higher for the session on the back of that stronger German data, up nearly 50 pips to 1.3756. The British pound then was off 40 pips as consumer prices dipped slightly in January to 1.9 per cent from 2 per cent, which is around the target. The retail price index suggests inflation is still well above target, this index rising 2.8 per cent annually. The yen is then at 102.32 having fallen sharply yesterday afternoon as the bank of Japan promised to lift sharply two loans schemes that provide ultra-cheap loans to targeted areas of the economy… family, mates and political allies, no doubt.

Commodities were bid and hard in some cases. Crude spiked on WTI (almost 2 per cent to $102.46) and Brent too (1.3 per cent to $110.43), seemingly on cold weather – greater demand for heating oil etc. Silver too saw strong demand, rising 2.3 per cent, although gold was up only smalls ($5 to $1323). Copper rose 0.6 per cent.

Elsewhere US citizens appear to be gearing up again, the New York Fed reporting that household debt surged $US241 billion in the December quarter to $US11.5 trillion, which is the biggest quarterly increase since 2007. The Empire State manufacturing index then fell to 4.48 in February from 12.51 (average around 9). Recall that weather has distorted economic activity so a dip here isn’t to be unexpected. Still in the US, the NAHB housing market index fell to 46 in February from 56. There are also a few stories running around about China urgently draining money from the system, with varying degrees of hysteria.

In markets today, the SPI suggests Aussie stocks will rise 0.1 per cent. In terms of the macro data-flow the main domestic release will be the wage price index (1130 AEDT). Wage prices are contained, have been for a long time and are highly unlikely to come back onto the radar. Elsewhere for our region, a Chinese business indicator comes out at 1245 AEDT. Tonight the key releases include the UK unemployment rate, eurozone construction output and in the US we get housing starts, producer prices and the FOMC minutes. I don’t think the minute will veer from the current path. The Fed will taper again – maybe not at the next meeting but certainly at other meetings this year. The economy is accelerating and recent disappointments are likely weather-induced, although more time is needed to be sure.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.