SCOREBOARD: Stocks becalmed

European markets held steady despite record Greek unemployment, while Wall Street failed to move forward.

Another nothing night for global markets in the end, with everyone seemingly in holiday mode. European markets looked a little precarious at one point, with the Dax off 1.2 per cent at the low. This may have been on the back of what looked like another lift in Spanish and Italian bond yields.

It’s not that there was much news, although punters may have been spooked by data out of Greece showing unemployment at a new record – 23.1 per cent. Youth unemployment stands at 54 per cent. So at the high, yields on both were up about 8 bps or so to 5.88 per cent and 6.88 per cent, but they erased those gains closing where they began and eventually we saw German stocks lift as well. So in the end the Dax was 0.02 per cent lower, the CaC was up 0.5 per cent, while the FTSE was 0.1 per cent higher.

Cue Wall Street and US markets again hovered around zero and on comparatively tight ranges (S&P500 0.2 per cent to -0.4 per cent). Volumes were around the lowest in five years though! At the bell the S&P managed to put on 0.04 per cent (1402) 5th consecutive gain though, the Dow was off 0.08 per cent (13165) and the Nasdaq rose 0.3 per cent. Outside of tech stocks material and energy stocks outperformed as well and the reason for that is China.

We saw a batch of strong Chinese data yesterday and while there is much fanfare about China’s ‘sluggish growth’ the fact is it’s strong. China’s economy is still powering ahead although for those who want to talk things down, it is powering ahead at a slower rate – Gasp! the end of the world etc. What does it matter though when we are talking industrial production up 9 per cent or so for the year. Retail sales up 14 per cent? Sensibly it doesn’t, these are strong growth rates – and that’s a fact. For Australia, these numbers are consistent with strong commodity demand and a high terms of trade.

The even better news is that weak Chinese inflation means that if anything, the Chinese authorities may boost growth further with more stimulus. Throw into that mix the fact that US jobless claims fell slightly (361,000 in the week to August 4, from 367,000). But, with everyone on holidays what support we saw for commodities was modest it’s fair to say. So crude rose 0.4 per cent to be at $93.7, copper was flat and gold was up $4 or so.

The Australian dollar, having initially punched through 1.06 following a solid domestic jobs report and that Chinese data yesterday afternoon, fell back and now sits at 1.0584. That’s only 14 pips or so form 1630, so nothing.

While we’re on it, the key take from the Australian jobs figures yesterday is that the unemployment rate remains low and there is no sign of this pick-up in unemployment that everyone keeps ranting on about.

People need to start having more respect I think. Respect for the facts and logic more generally. Respect for the community at large. Because there are too many people who are in fact disrespecting their readers and the nation more broadly when they think they can just stand there and make stuff up – effectively just lie. "The non-mining recession”. "Retail its weakest in 50years!”, "The strong AUD is crunching growth”. It’s insulting. Australian growth is not weak and the labour market is not sluggish. Recent indicators show the labour market remains tight and that if anything, jobs growth has picked up. And this should be a cause for joy - for national celebration.

Anyway back to the price action, EUR was off about 80 pips to 1.2304, while sterling and yen are at 1,5638 and 78.58.

Rates did little and the US 10 year traded within a 5 bps range, but ended virtually unchanged at 1.69 per cent. The 5 year sits at 0.73 per cent, while the 2 year is at 0.28 per cent. Australian futures then did little with the 3s at 97.20 and the 10s at 96.75.

For Australia, the SPI suggests Australian stocks will be 0.1 per cent higher today. Don’t forget we see the RBA’s Statement on Monetary Policy (SOMP) at 1130. I’m not sure that we’re going to learn much from it though. We know their CPI forecasts are pretty much unchanged and of course they’re going to have to revise up growth. Quite sizeably for the June quarter I would have thought, although I have no sense of what they’ll do beyond that. Not much probably. Recall that the RBA gives a range now rather than a point estimate and the growth range for the year to June 13 is 2.5 to 3.5 per cent with CPI 2 to 3 per cent. That pretty much covers most plausible scenarios.

In any case the RBA apparently didn’t cut rate this year because of domestic economic factors. They cut as ‘insurance’ and the problem with that is its arbitrary and that excuse can be used in any month and ultimately isn’t something you can’t forecast . Maybe they’ll hike as insurance?

Other than the SOMP we see the final estimate of German CPI at 1600, UK PPI at 1830 and then tonight we get US import prices. Chinese trade statistics are due at some stage as well, although I can’t see a time for that. They may even come out over the weekend.

That’s about it, 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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