SCOREBOARD: Steady nerves

We didn't see a great deal of action last night, but then again there wasn't great deal of news and of course volumes are low. Equities were flattish, either side of zero around the globe with US markets up 0.06 per cent ( 0.2 per cent to -0.3 per cent range) on the S&P500 (1402), down 0.01 per cent on the Dow (13167) and off 0.2 per cent on the Nasdaq (3010). Europe had a similar end and the Dax was down -0.03 per cent, the CaC -0.4 per cent and FTSE 0.08 per cent.

At the very least we can say that gains over previous session have held steady, which is impressive given some of the data flow we've seen. Especially out of Europe. Most of the news flow that I can see concerns this deterioration in European data we've seen of late. It has deteriorated, there's no doubting that, and given the way the Europeans have handled the crisis, that was the only reasonable expectation. That said, most forecasters still only predict a modest contraction this year and I think that's about right at this stage. The beauty of that for the rest of us, is that a modest contraction will have no noticeable impact on global growth, given the European contribution to this growth is comparatively small (and has been for a long time). It's effectively meaningless in the absence of a large slump in activity.

Specifically for last night, the data continued to show that the region remains soft, but not disastrously so overall. German exports for instance fell 1.5 per cent in June, but this comes after a 4.2 per cent surge the month prior. Imports then were 3 per cent lower after a spike of over 6 per cent in May. German industrial production was then off 0.9 per cent in June after a 1.7 per cent gain the month prior, to be 0.3 per cent lower annually. Spain is obviously having a worse time of it with industrial production down about 6.9 per cent annually in June and bankruptcies rising to a new record.

Outside of that there wasn't any hard-hitting US data to speak of (productivity and unit labour costs) and so commodities had a fairly dull session as well. Crude for instance was off 0.3 per cent ($93.43), copper fell 0.5 per cent while gold was up a couple of bucks to $1614.

On the forex front, the Australian dollar was up another 20 pips or so to 1.0573 and the euro was down about 20 pips to 1.2364. The biggest move overnight came from sterling, which bounced around but ended almost 70 pips higher at 1.5659, despite the Bank of England cutting its growth forecast from 1 per cent to about 0 per cent for this year. From what I can tell the move may have been sparked by comments from the BoE's governor, Mervyn King, that the bank was unlikely to cut rates again as such a move could turn out to be counterproductive – harming financial institutions. Or alternatively, the BoE has such an atrocious foresting record, especially on inflation, that maybe the markets took Kings downgrade as a positive sign for the economy. Whatever the case, while King ruled out further rate cuts, he did seem to imply the BoE could print some more money. Which of course in modern economics, apparently makes sterling a good store of value.

While stocks and commodities did little, bonds had a comparatively busy session, with the US 10 year yield rising another 4 bps or so to 1.648 per cent. The 5 year is up 3 bps to 0.723 per cent, while the 2 year is at 0.28 per cent. Australian futures did little though and the 3s sit at 97.23, while the 10s are at 96.75.

For today the SPI suggests Australian equities will push higher ( 0.4 per cent), although there is some key data out that could influence this outcome. We see Australian employment data at 1130 and the consensus is that 10,000 jobs were created in July, while the unemployment rate is expected to rise to 5.3 per cent. At around the same time we see China's inflation data and then this afternoon (1530) Chinese retail sales, industrial production and investment follow.

Data tonight includes Chinese trade, UK trade and US jobless claims.

Have a great day…

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

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