SCOREBOARD: Rumour treadmill

The rumour mill got a good workout last night as comments from an unnamed German official dampened growing optimism about this Friday's European summit. Initially it was risk on – European stocks were bid at the open and soon hit a high; the Dax was up 1.8 per cent (compared to the previous close); euro then hit a high of 1.3454, the Australian dollar pipped 1.03 cents and our futures were seeing solid selling pressure (with the 3s at 96.72 and the 10s at 95.964 at the low).

The reversal was on soon after, however, and kicked in for real after the ECB's lending numbers came out, with more fuel provided by this unnamed official. Dollar demand was high at the ECB's US dollar offering (after the 50bps cut last week) which at $50 billion was well above the $10 billion forecast. But then this German official said that he is "more pessimistic than last week about reaching an overall deal.” Great.

European stocks then ended weaker with the Dax off 0.6 per cent, the FTSE down 0.4 per cent, while the CaC fell just 0.1 per cent. Spanish and Italian bond yields pushed higher as well – the 2-year up 38bps to 4.39 per cent (Spain) and 6bps to 5.65 per cent (Italy). The 10-year yields were up 22bps for Spain (5.43 per cent) and 12bps for the Italians (5.99 per cent). None of that is particularly good news in the lead-up to this summit, but it is just rhetoric. The French for their part are sticking with the line that there will be some magic at the summit. Don't forget the ECB meet tonight and are widely expected to cut rates 25bps to 1.25 per cent. But that's not all! Unnamed ECB officials suggest the bank would also take measures to boost lending throughout the region. Options include loosening collateral requirements and also providing funds for much longer maturities at their long-term refinancing ops.

As Wall Street opened the mood was decidedly grim. Stocks were offered from the open and the S&P was down 1.1 per cent at the low. Stocks have managed to pick up somewhat from then, but still, as I write, the offer is on. The S&P500 is currently down 0.5 per cent (1252) with energy, industrials and basic materials the key deadweights. From that you can probably tell that commodities aren't having the best session and WTI is off almost 1 per cent to $100, while Brent is down 1.3 per cent ($109). Copper is otherwise off 0.8 per cent although gold managed a bid and is $12 higher at $1740. Elsewhere, the Dow is about 3 points lower (12146), the Nasdaq is 0.6 per cent lower and the SPI is off 0.7 per cent (4277).

US Treasuries pushed higher pretty much for the whole session and as I write, 5-year and 10-year yields are down about 7bps to 0.88 per cent and 2.02 per cent respectively (on a 9-10bps range). The 2-year was off a couple of bps to 0.23 per cent. From the low, Aussie futures then rallied about 10 ticks a piece with the 3s currently at 96.83 and the 10s at 96.045.

Finally for the price action, the euro and Australian dollar are off their highs, with euro at 1.3395, which is about 25 pips lower than at 1630 AEDT yesterday arvo. The Australian dollar sits at 1.0275, or little changed from 1630 AEDT yesterday. Sterling is about 85 pips higher to 1.5695, while yen is at 77.67.

Bits and piece otherwise. The RBNZ kept rates unchanged at 2.5 per cent and suggested that policy would remain supportive for sometime. They note deteriorating global conditions and consequently expect lower growth domestically, although overall they note the impact to date has been limited. German industrial production rose 0.8 per cent in October, which was well above the 0.3 per cent expectation. Annually, production is 4.1 per cent higher. UK production in contrast fell 0.7 per cent to be 1.7 per cent lower annually. Otherwise and in the US, mortgage applications rose by 12.8 per cent in the week to December 2 which offsets the 11.7 per cent fall of the week prior.

Looking at the day ahead, Aussie employment numbers are released at 1130 AEDT. The market looks for a modest increase in employment ( 10K) with the unemployment rate expected unchanged at 5.2 per cent. Other than that, the BoE meets although no changes are expected, while the ECB is expected to cut 25bps to 1 per cent. US data includes the weekly jobless claims numbers and also wholesale inventories.

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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