SCOREBOARD: Spanish conquest

Spain's debt auction overnight was a great success, but failed to translate into a similar boost for European equities.

I would have thought Spain’s successful debt auction would have sparked a bit more of a risk bid overnight. It was a huge success. Cover was at 2.8 times and yields came down sharply. So the Spanish Treasury sold off €4.8 billion of bonds which was above the target of €3.5 to €4.5 billion, with the 10-year going out at 5.7 per cent instead of 6.6 per cent at the start of August. Not bad, and it's being reported that 70 per cent of the bid came from foreigners.

Admittedly yields rose slightly in the secondary market, but the point is the funding crisis is over. Yet there is this hesitancy.

European stocks were weaker on the major indices – Dax off 0.02 per cent, CaC off 0.6 per cent and the FTSE fell 0.6 per cent. Euro, which had sold off in the Asian session yesterday, weakened a little further for the US and European session but not much. Overall the unit is about 20 pips lower from 1630 at 1.2966.

Much of the concern is about the apparent global slowdown and there is certainly data around to fan those fears. The usual data – so the European PMI's fell again in September, the composite index dropped to 45.9 from 46.3. China’s ‘flash’ PMI is below 50 (was little changed in September at 47.8) and, of more importance, Japan’s trade statistics weakened.

But it’s not all bad news – in fact the more important data was Italian industrial orders, which rose almost 3 per cent in July after a 1.7 per cent spike the month prior. Sales rose 1.2 per cent.

This data is far more important than the PMI’s. It's data like this that really buttresses my view the European downturn will be light – indeed it quashes any hope the downturn will be severe. More likely, they’ve passed the trough already – and this matters. Because outside of Europe there really isn’t much that ails the world.

Over on Wall Street, markets ended more mixed (around 0). The S&P for instance fell 0.05 per cent (1460), the Nasdaq was down 0.2 per cent (3175), although the Dow was up 0.1 per cent (13596).

Here too the data wasn’t that bad. The Philly fed index for instance rose from -7 in September to -2 (roughly) and while that’s still below average – new order, prices and shipments all shot higher. In any case, the really important number was in the 6-month outlook. That shot up to 41 from 12.5 in a sign that US business is becoming a lot more optimistic on life. I should add that 42 is above the average of 32, so again this isn’t consistent with stall speed growth or anything.

It highlights again why many Australian business leaders should be put to pasture – especially those warning about the end of the mining boom.

So we’ve gone from a non-mining recession to a mining recession now. In the space of a year. I see. I think it’s seriously in the national interest for the government to buy a large number of slippers and some comfy chairs for some of our business leaders. Maybe some Horlicks to boot.

Anyway there was some other US data out in the form of jobless claims, and while these are up a bit from a few months ago, they are solidly below 400,000. In the week to September 15 they were little changed at 382,000, while continuing claims fell about 30,000 to 3.27 million. Not bad.

Over in the commodity space the crude slump seems to have abated for now. WTI was down about 0.1 per cent to $91.87. Copper was then down 0.9 per cent and gold was up smalls ($1770). So not really much action, nor was the rates side more interesting – US yields were up a bit with the 10-year at 1.76 per cent, the 5-year at 0.69 per cent and the 2-year at 0.26 per cent.

That’s about it. The SPI suggests the Australian market will receive a modest boost today, that index up 0.3 per cent to 4417.

Otherwise, and looking at today’s calendar there isn’t a lot, not much worth commenting on anyway and it’s not any better tonight. We get Canadian inflation, UK public sector borrowing and that’s pretty much it.

Have a great weekend...

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

@AdamCarrEcon on Twitter.

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