SCOREBOARD: RBA future shock

Amid talks of a coup attempt (or just political instability) in Turkey, strikes (soon to be riots if anarchists have anything to do with it) in Greece and an 11 per cent fall in new US home sales (January) to a new record low – US stocks are 0.9 per cent higher (1104 on the S&P500) as I write (10mins to go).

Seems odd doesn't it – but not with helicopter Ben at the helm. In his testimony to Congress, Bernanke made clear that last week's discount rate move was not a tightening and that a true tightening of policy was some time off.

Relief at hand, equities rallied shortly after with European indices up 0.2 to 0.5 per cent. I guess the other reason some of the data (like US home sales) didn't spook the market is that people are fully prepared to see weak growth outcomes over the next little while as severe weather disrupts the northern economies. So that leaves free money to drive markets.

While the dollar index weakened soon after the Fed, it has since rebounded such that it is little changed from 1630. Most of the major currencies were then little changed from late yesterday afternoon (AUD at 0.8925, EUR at 1.3529, yen at 90.18) except GBP which is still getting hit by the BoE's quantitative easing comments (down 50 pips to 1.5400).

That said, commodities saw some strength, the CRB index up 1 per cent, crude 1.4 per cent ($79.96) while gold was down smalls (to $1096) and base metals were mixed (copper up 0.3 per cent, nickel down 1.5 per cent, zinc down 3.2 per cent).

A solid lift in crude and natural gas gave some support to US equities, although the main outperformers were financials, consumer services and technology. The Nasdaq is currently up 0.9 per cent (2232), the Dow 84pts to 10366 and the SPI only 0.3 per cent (4656).

On the rates side there wasn't much to say. We had Treasury's $42bn 5-yr auction which was okay, bidding being stronger than average with cover at 2.75 compared to the 12-auction average of 2.42. The amount awarded to indirect bidders was below average at 47.3 per cent although they accounted for 76 per cent of competitive bids. But price action was limited and ranges comparatively narrow (about 5bp). So far the yield on the 2-yr has dipped only 2bp to 0.86 per cent, the 5-yr and 10-yr yields are down about the same to 2.35 per cent and 3.69 per cent respectively.

Aussie futures had a more interesting time, trading within an 11/6 tick range. They sold off on a McCrann article in which he said the RBA will certainly hike rates next week. I guess the question for markets is whether this is a tap on the shoulder or not – ie. whether he was briefed on the RBA's view and the policy recommendation that will be finalised and presented to the board today. He is certainly sounding confident. True, and I hear you, that in his testimony to parliament, Steven's denied leaking board recommendations; well specifically he denied that board decisions are leaked, which of course isn't the same thing – so question marks remain.

This is interesting for a thousand billion reasons, but in the article today I particularly liked the comment that the RBA board doesn't rubber stamp what RBA management says. Then, in the same breath, he goes on to say that the board will, and indeed has to, leave the tactical month to month decisions to pause or lift to management ie. they will and have to, rubber stamp what the RBA management says! This is incredible. That aside, I don't disagree with the comments that there is nothing standing in way of a hike – but then again there wasn't in February either. Moreover my long held forecast is that we would at least get 4/5 rate hikes this year and that hasn't changed. All we know for sure is that 3s sold of 5 ticks and 10s about 2/3 ticks. Compared to 1630 3s are down 4 (95.07) and 10s up 1 (94.40).

Other news and data was light – mortgage applications in the US fell 8.5 per cent, German GDP was confirmed at 0.0 per cent in Q4, while industrial orders in Europe were much stronger than expected rising 0.8 per cent (forecast -0.8 per cent).

Today in Australia we get private capital expenditure (11.30am) and the interesting component here is the plant and equipment number. Yesterday's construction work done print suggests building investment may be weak in the 4^th quarter, but that this will be more than offset by public investment. For today's print, I'm expecting a rise of 2 per cent in CAPEX with the market also at 2 per cent. Otherwise at 1pm look out for the NBNZ business report. Tonight we get US house prices, jobless claims, durable goods and a couple of fed speakers, including Bernanke to the Senate.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.