SCOREBOARD: Top dollar

European woes failed to dampen the Australian dollar and euro, which rose on positive US data overnight.

Reasonably solid US economic data looks to have given a decent lift to sentiment overnight, with US equities getting a decent bid, while the Australian dollar and euro both pushed higher. As I write, the Australian dollar is sitting just above 1.04 (1.0410 to be precise), which is about 20 pips higher than at 1630 AEDT yesterday and down from a session high of 1.0428. The euro is up about 70 pips to 1.2841, while sterling is up 80 pips to 1.5426 and yen little changed at 76.82.

As to the data, US industrial production rose 0.4 per cent in December, which is a touch weaker than expected, although a big fall in utilities (weather induced) weighed heavy. This production data was soon followed by a decent lift in the NAHB housing market index, which rose to 25 (almost a 5-year high, but still well below average) from 21 and then mortgage applications surged 23 per cent in the week to January 13 – refis were strong at 26 per cent, but loans for purchases were pretty decent as well, rising 10 per cent.

Thankfully, there wasn’t a lot of offsetting negative news from Europe. On the Greek front, participants seem confident that a deal will be reached – talks are proceeding apparently – and something may be agreed to as early as next week, according to unnamed sources quoted in the press. That’s all positive if true. Also a positive, it seems, was an announcement from the IMF that they will seek an additional $500 billion in crisis fighting funds. The Europeans have already committed $200 billion of that and the rest will be made up from loans.

We saw a couple of auctions last night as well – strong demand at Portuguese bills (€2.5 billion, good cover and lower yields, from 4.35 per cent to 4.99 per cent for 3-month, 6-month and 12-month paper) and a German 2-year Schatz that helped alleviate fears as well.

US stocks ended 1.11 per cent stronger on the S&P with financials, tech and basic materials the key outperformers. The Dow for its part was up 96.88 points (12578.9), the Nasdaq 1.53 per cent (2769.71), while the SPI was up 0.6 per cent (4219). In the commodity space there weren’t really any huge moves – copper was 0.7 per cent higher, silver 1.4 per cent and gold was up smalls ($1657). Crude in contrast was flat to weaker, with WTI off smalls ($100.66) while Brent fell 0.8 per cent ($110.7).

US Treasuries really didn’t do a lot though through most of that, with the 10-year trading only within a 3bp range for much of the session. Early this morning they were offered and the 10-year yield pushed up 3bps to 1.902 per cent (up almost 5bps from 1630 AEDT). The 5-year yield sits at 0.81 per cent or 2bps higher than 1630 AEDT, while the 2-year is up almost one basis point to 0.23 per cent. Aussie futures are selling off a bit as I write, and are three to four ticks lower than at 1630 AEDT – the 3s at 96.78 and the 10s at 96.15.

In other news and data, the German government reckons they will avoid a recession this year while Fitch suggested they may cut the ratings of six European nations (including Spain, Italy, Ireland and Belgium) which are currently under review. On the data front, European construction work done rose 0.8 per cent in November after a 1.4 per cent fall, while in the UK, the unemployment rate rose to 8.4 per cent in the 3 months to November, from 8.3 per cent.

Today kicks off with New Zealand fourth quarter CPI at 0845 AEDT. The market looks for a rise of 0.4 per cent, and I’m only a little higher than that at 0.5 per cent quarter-on-quarter. The annual rate should drop sharply, from 4.6 per cent to 2.6 per cent, as temporary influences, such as increases to tax rates, drop out. At 1130 AEDT we then get Aussie employment data. The consensus is that 10,000 jobs were created in December, with the unemployment rate expected to remain steady at 5.3 per cent. Other than that, data tonight includes US consumer prices for December, housing starts and the January Philly Fed index.

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

Follow @AdamCarrEcon on Twitter.

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