SCOREBOARD: Rumour rush

There are plenty of ideas (most of them insane) and lots of rumour and speculation, but little in the way of hard and fast facts. That is, the juicy variety that the minority of reasonable people in the world need to inform themselves, formulate a view and make decisions.

Yesterday afternoon, the BBC reported that European officials and the IMF were close to an agreement where the EFSF would receive a significant boost – to €2 trillion with leverage – while Greece would write-down the value of its debts by about 50 per cent. Reuters, in contrast, suggests that an unnamed eurozone official told them: "All this talk of a specific haircut for Greece or an enlargement of the EFSF, it is all just speculation. We are not working along those lines."

There is also lots of talk about Europe setting up a TARP-like program similar to what the US used during the GFC, and the ECB cutting rates next month by as much as 50bps, or as is more likely, increasing the maturity of their refis tenders – but who knows what they are considering? One ECB member nevertheless suggested that "these wild (rate cut) expectations only show that some people have lost the North…we have one needle in our compass,” referring to the one mandate of the ECB which is to target inflation below 2 per cent (currently at 2.5 per cent). Most ECB members have made it clear that only if the data deteriorates significantly would a cut come.

Yet, it's not clear that the data has actually deteriorated significantly. The Bundesbank still forecasts good growth, strong growth actually in the third quarter, and the German IFO survey out last night backs that view. It didn't decline much at all, which under the circumstances is remarkable. The Business Climate Index fell to 107.5 in September from 108.7 which is still well above average (101). Indeed, the current assessment index was little changed at 117.9 from 118.1 and significantly above the average of 102. Bottom line: the German IFO survey points to strong growth. Many people will have trouble accepting that because it stands at odds with market moves and the news flow. Yet, I would remind readers of the 2010 experience – the double-dip debacle. We didn't have a double-dip, we weren't even close, and growth was strong all the while – but can you recall the outrageous hysteria and outright fear? If we should have learnt anything from that experience it was to not give into the alarmism nor listen to people who don't base their opinions on facts. Wait for evidence – have some factual backing or reasonable logic before you form a view. What value is a view otherwise?

Certainly I think things are decidedly more serious than in 2010, given the incompetence of politicians and policymakers in the US and Europe. But as I said yesterday, there is no point in jumping the gun. People in Australia who were calling the non-mining recession show the foolishness of this. There is no evidence that the globe is in a recession, we're not even close and the tier-one data is still decent (ex Japan earthquake) – in some cases it has been accelerating. So the usual gaggle of double dippers coming out again and preaching doom and hysteria is just as ludicrous as it was last year – you people add nothing to the discussion.

If things deteriorate it will be because of the failure of European politicians – this is the fear of sensible people and this is why we need a speedy resolution of the political crisis. The thing is, European politicians are not guaranteed to fail. We have to wait and see what it is they end up doing. If they are sensible, then prospects are still good. So why jump prematurely on the doomsaying, recession-loving bandwagon? There is no point at this juncture. We are at the crossroads as I have noted before. Whether this turns out to be more like 2010 or 2008 remains to be seen and is in the hands of the Europeans.

Anyway, I digress. Market moves last night were better, thankfully, perhaps because of all the speculation about European TARP programs and the like. I guess it at least gives the illusion that progress is being made and if we're lucky it may actually be. So equities in Europe were up 2.9 per cent on the Dax, 0.5 per cent on the FTSE and 1.8 per cent on the CAC. Wall Street had a similarly buoyant session with the S&P500 closing 2.3 per cent higher (1162) although there was a decent range with the index down 0.5 per cent at the low. Financials, energy and basic materials were the key outperformers on the index, all up over 3 per cent. Utilities, technology and telecommunications lagged, though they still had a good session. The Dow for its part was up 272 points (11043), the Nasdaq rose 1.4 per cent (2516) and Australia's SPI was 2.7 per cent higher (3984).

US Treasuries then sold off, with the yield on the 2-year note up 1bp to 0.23 per cent. The 5-year was 5bps higher to 0.9 per cent and the 10-year yield was up almost 9bps to 1.9 per cent. Aussie futures followed suit with the 3s down about 10 ticks to 96.48 and the 10s down 12 ticks to 95.86.

Big moves were seen in the forex space, with the Australian dollar up 144 pips to 0.9838. Sterling and euro were also up over a big figure to 1.5563 and 1.3539, respectively, while the yen was little changed at 76.36. US dollar weakness aided a bid for commodities, with gold up $77 from 1630 AEST to sit at $1627. Copper was also strong, rising 2.1 per cent, while WTI rose 1.9 per cent ($81.36) and Brent added 0.9 per cent ($104).

Bits and pieces otherwise. We saw two Fed speakers (Bullard and Bloom-Raskin) with Raskin suggesting that more accommodation was required. In the US, new home sales fell 2.3 per cent in August, while the Dallas Fed manufacturing activity lost ground to -14.4 from -11.4.

Not much out today for Australia or NZ. Tonight watch out for US consumer confidence and the Richmond Fed manufacturing index.

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

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