Scoreboard: Relaxed on rates

Wall Street rose despite steady US data supporting the case for rate hikes.

Markets settled down a bit overnight, following concerns in the previous session that the Fed would raise rates more aggressively. Strange really, because if anything data overnight supported the case for rates to rise. In any case there is supposedly a lot of uncertainty regarding the rates outlook following Fed Chair Janet Yellen’s testimony, and I can’t see that confusion going away -- the central bank has no targets and I’m genuinely surprised by the silence from the economic community and the press.

As to the data, we saw jobless claims edge higher in the week to March 15, but only modestly so -- 5000 to 320,000. At that level, claims are very low and point to further strong jobs growth. The market was also heartened by the Philly Fed index which spiked higher in March -- 9.0 from -6.3. This adds to other signs that the economy will rebound quickly after a weather-induced lull.

Global equities managed to push higher in most cases, especially on Wall Street. With about 40 minutes left to trade, the S&P500 was up 0.5 per cent (1869), the Dow put on 100 points (16,321) and the Nasdaq was up 0.2 per cent (4317). By sector, telecommunications and financials were the key outperformers. In Europe, the Dax was up 0.2 per cent, the CaC 0.5 per cent, while the FTSE fell 0.4 per cent.

Forex markets were comparatively sedate. The Australian dollar is up 20 pips or so to 0.9040, the euro is 50 pips lower at 1.3777, while the British pound is off just over 30 pips to 1.6506.

Commodity markets saw decent selling, especially in the metals space. At the time of writing, gold was down another $14 to $1327, silver then lost 2.7 per cent and copper fell nearly 1.9 per cent. In the crude space, action was mixed. Brent rose 0.3 per cent to $106.2, but WTI fell 0.1 per cent to $99.38.

Rates pushed higher again in yield, although US rates really only went back to the levels seen post Fed. The US 10-year yield is up 4 bps to 2.78 per cent. The five-year is back up to 1.70 per cent, while the two-year yield is at 0.42 per cent. Aussie futures were down a tick a piece -- 96.95 on the threes, while the tens were at 95.85.

Elsewhere, other US data wasn’t so positive -- existing home sales fell 0.4 per cent after a 5.1 per cent fall the month prior. As to the Crimean crisis, the US slapped more sanctions on some Russians and the Russians in turn slapped some sanctions on a handful of US citizens. I believe name-calling was involved. Adding to what is increasingly a farcical situation, the French president then piped up that borders simply cannot be unilaterally redrawn without a response. To that the Russians responded: “Kosovo” and “referendum”.

Markets are increasingly ignoring the situation though, for several reasons. The fact that the majority of Crimeans actually want to be part of Russia -- even many Ukrainians -- seems lost on the US government, but not on the market. Moreover, if Western press reports are correct, Crimeans -- including Ukrainians -- are falling over themselves trying to get Russian passports. The US and Europe should just drop it and stop embarrassing themselves and escalating things. Whatever they may think of Putin, the fact is successive governments in Kiev have been corrupt and incompetent.

In markets today, the SPI suggests Aussie stocks will rise 0.3 per cent. There isn’t a lot of data for Australia otherwise, nor anywhere else really. The key data tonight includes Britain’s public finances, eurozone consumer confidence and about four Fed speakers.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.