SCOREBOARD: Rally cry

A positive Beige Book report sparked Wall Street risk appetite for the first time since the release of dour payroll figures.

The panic that looked to have set in following US payrolls seems to have settled down somewhat and even reversed a bit overnight – for the first session in five though. In Europe, equities managed to post modest gains with the Dax up 1 per cent, the FTSE up 0.7 per cent and the CaC up 0.6 per cent. Within that, financials put in a strong performance.

Partly, this was due to a fall in Spanish and Italian government bond yields and we saw the 10-year yields down about 10 (5.87 per cent) and 15 basis points (5.53 per cent) respectively in trading overnight. However, the real test will be tonight when Italy auctions off €5 billion of bonds. They sold some bills overnight and managed to get everything out, but they’re paying for it. Well barely, but they are paying more than what they paid last month. So for instance the €8 billion of 1-year bills that were auctioned off went out at a yield of 2.8 per cent compared to 1.4 per cent in March. The euro itself didn’t end up doing much, having hit a high of 1.3154, and sits at 1.3107 from 1.3115 yesterday at 1630.

Across the Atlantic, US markets generally followed suit, and punters there had the added bonus of the Beige Book. Recall that this is an anecdotal report on current economic conditions across industry, compiled by the Fed. This report suggests that the US economy continued to expand at a modest to moderate pace from mid-February through late March, but when I read through the detail my sense is that this is a more optimistic report. The US economy continues to improve. Some districts noted improving business conditions, solid growth or growth at a faster pace. Similarly, despite all the concerns about jobs growth stalling or what have you, hiring was regarded as ‘steady or showing a modest increase across many districts’. Given the sharp pace of jobs growth we have seen any increase on that is very positive. It’s very positive even if it held steady.

Anyway the point is, that this report would have complemented the positive lead out of Europe. And so we saw the first gain on the S&P in five sessions, the index closing 0.7 per cent higher (1368) with financials, telcos and consumer services the key outperformers although all sectors were up. Factoring in last night’s moves, the S&P is down about 3 per cent over the last 5 sessions – down 0.2 per cent for the month. The Dow for its part was also up 0.7 per cent (12805), the Nasdaq 0.8 per cent (3016), while our own SPI was only 0.2 per cent higher following a 1 per cent fall on the All Ords yesterday.

Maybe we should roll out some of our business and union leaders to go out on an investor road show, talk things up a bit with such pearlers as "the steel industry is on the verge of collapse”, "the whole eastern seaboard is in a recession” or "interest rates are too high and the Australian dollar is crunching growth”. You know, calm international concerns a bit and maybe demonstrate their competence and ability to steer productivity and efficiency gains. It’d be a great holiday at the very least – just expense it, take your family. It’s only other people’s membership fees, after all. Oh hang on a minute, it wouldn’t work. They don’t have the time – far too busy trying to corrupt macroeconomic policy settings.

Anyways, on the debt side, US treasuries sold off a bit but moves weren’t huge. On a 6 basis points range, the 10-year yield was up 5 basis points to 2.03 per cent, the 5-year was up 3 basis points to 0.88 per cent and the 2-year was unchanged at 0.289 per cent. Aussie futures then followed suit with the 3s and 10s down between 3-5 ticks to 96.73 and 96.14 respectively.

Other than that we saw gold little changed at $1608, although crude generally pushed higher with WTI up 1.6 per cent (102.6) and Brent up 0.1 per cent to $120.02). In terms of data, US import prices rose by 1.3 per cent in march which was much stronger than the 0.8 per cent expected, to be 3.4 per cent higher annually.

That’s pretty much it for last night, and so looking at the day ahead, the big number for Australia today is the employment figure (1130 AEDT). The consensus forecast is that jobs rose by 6.5,000 in March with a spread of -15,000 to 18,000. Now remember that this number is a bit of a lottery – it’s unreliable, extremely volatile and it’s best not to get excited by a handful of numbers. You need to look at trends, the unemployment rate and hours worked. When you do that, the picture being painted is of a labour market that is treading water. There is no major job shedding a foot and indeed we’ve seen very modest jobs growth. Overall though I’d say there had really been no employment growth to speak of, employers instead opting to lift the hours of existing employees. Strong domestic demand growth suggests it is unlikely that we will see major job shedding – it would be unprecedented. That said, we are doing a great job of talking ourselves into the grave so we’ll see. For what it’s worth, the unemployment rate is forecast to rise to 5.3 per cent from 5.2 per cent.

Outside of that we see India’s industrial production figures, and then tonight we see UK trade and European industrial production figures. For the US, we also see trade numbers, the producer price index and of course the weekly jobless claims.

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