SCOREBOARD: Ready, steady, Europe

European markets tried to break through two-year highs overnight as investors took advantage of a more positive news flow.

US markets were closed for the Martin Luther King (Jnr) birthday holiday, consequently there wasn't a great deal of action.

Stocks did trade over in Europe (on light volumes), where the mood was generally positive and stocks are now re-testing two-year highs. Whether it was the decision by the GOP to extend the debt ceiling by three to four months, the expectation the Bank of Japan is going to put a little more effort into printing money, momentum or a combination of the above – it was a decent session.

No reason to sell off I guess and the major indices all closed higher. The FTSE closed around 0.4 per cent stronger – and at its highest since 2008 – and the Dax and CaC closed 0.6 per cent higher, while S&P futures closed up 0.3 per cent. Our own SPI is off smalls and it’s interesting to note that while markets in the US and UK are the highest in four or five years – our market is still some 20 per cent away from that. The obvious reason is that many of our companies are too busy talking their own businesses down, talking the countries growth prospects down instead of planning and investing for the future.

You can guess that price action elsewhere was pretty quiet as well, so the Australian dollar for instance moved on a 15 pip range and is little changed from yesterday afternoon at 1.0518. It’s the same story for the euro at 1.33317, while the yen edged up to 89.75.

In the commodity space moves were very small, either side of zero. Gold is at $1689, while crude (WTI) sits at $95.47. As for rates? Yields generally pushed higher - the 10-year German bund was up 3 to 4 bps to 1.53 per cent. Gilts up about the same to 2.05 per cent, while Italian and Spanish yields rose about 4 bps or so to 4.18 per cent and 5.14 per cent on the 10-year.

Bits and pieces otherwise. It was interesting to note comments made by Jens Weidmann, the President of Germany's Bundesbank. He is becoming increasingly concerned about the currency wars and the loss of central bank independence noting that "it is already possible to observe alarming infringements”. On the economy, the Bundesbank reckons that Germany’s economic downturn won’t last long, that the outlook has improved and that the bottom could already have been reached.

Also of note is that the European Bank for Reconstruction and Development cut its growth forecast for central and South-eastern Europe to 1.4 per cent in 2013 from 1.7 per cent. It also noted a reduction in the risks facing emerging Europe.

As for the data, German producer prices fell by 0.3 per cent in December to be about 1.5 per cent higher annually, while in the UK house prices, according to Right Move, rose 0.2 per cent in January to be 2.4 per cent higher annually. There really wasn't too much else.

So, looking at the day ahead, we see the outcome of the Bank of Japan’s two-day meeting. Everyone expects it to print, especially the new Prime Minister who has threatened that the bank will lose its autonomy if it doesn’t do as he says.

Outside of that we get the German Zew survey, the Chicago Fed National activity index, existing home sales and the Richmond Fed manufacturing survey. Nothing for Australia.

Have a great day…

Adam Carr is a leading market economist.

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