SCOREBOARD: Uneasy street

Wall Street was slightly lower after steady jobless claims, while ECB comments sent the euro down.

US stocks were weaker overnight, but only modestly so. With about an hour left to trade, the S&P500 is down 0.4 per cent (1506), the Dow is off 64 points (13,923), while the Nasdaq is 0.5 per cent lower (3151). There wasn’t a lot in the way of news flow and you can see that in the pricing. On the economic front, initial jobless claims were at 366,000 in the week to February 3, little changed from 371,000. But that's about it.

The bigger news was over in Europe, where the euro slumped about 165 pips to 1.3394 after the European Central Bank's decision. They kept rates steady at 0.5 per cent and all that, but markets interpreted the Central Bank president’s comments as reasonably bearish. He noted that financial conditions in the euro zone weren’t ideal and that the recovery would only come later in the year – with downside risk still in play. When you throw in comments like "we'll certainly want to see whether the appreciation [of the euro], if sustained, will alter our risk assessment as far as price stability is concerned", investors took it to mean that the Central Bank wouldn’t rule out indirectly intervening to deal with a strong currency, given that the Germans are against any formal exchange rate policy, something Draghi said the Central Bank would not adopt.

European stocks were mixed on that, with the Dax getting a boost from the weaker euro (up 0.1 per cent), while the Cac and FTSE100 were off about 1.1 per cent a piece. On a more positive note, the yield on the Spanish 10-year dropped about 10 bps to 5.39 per cent after a successful bond auction. Spain auctioned off €4.6 billion, with strong demand received, although yields were slightly higher. For instance, the 2-year bond went out at 2.82 per cent, which is about 50 bps higher than previous auctions.

Turning to the UK, The Bank of England's decision and associated commentary from the new governor Mark Carney actually saw the British pound rise 40 pips to 1.5702, which I find quite odd. The Bank kept rates at 0.5 per cent and opted not to print any more money – sure. They most likely will though. Mark Carney has made it clear he sees scope for more stimulus, which was why he was appointed by the government as the new Bank of England governor in the first place. People have said he is a gun for hire and he certainly is that. Of grave concern, Carney wants to scrap the Bank's inflation target – another reason he was appointed, as the government is in favour of this too. Certainly the Chancellor of the Exchequer seem to think there is scope for more easing, echoing words our own Treasurer says before each meeting: that strong fiscal consolidation means the Bank of England has ample scope to support the economy further. It’s like they share the same propaganda team. Probably do – from the US Treasury, no doubt.

For price action elsewhere, we saw crude down 0.8 per cent ($95.84, WTI), copper fell 0.3 per cent and gold was down $7 to $1670. US rates did little with the 10-year Treasury yield down a basis point or so to 1.9519 per cent. The 5-year is at 0.82 per cent and the 2-year 0.25 per cent. The Australian dollar is down 55 pips or so to 1.0285, while the yen is little changed at 93.46.

Bits and pieces otherwise: in terms of data, German industrial production rose 0.3 per cent in December after a 0.2 per cent fall the month prior; UK industrial production rose 1.1 per cent in December after a 0.2 per cent rise the month prior.

The Aussie jobs numbers out yesterday were more revealing for what they didn’t show. They didn’t show any deterioration in the labour market, which the Reserve Bank board has alluded to, and indeed the unemployment rate remained low at 5.4 per cent. Expectations were for the unemployment rate to rise to 5.5 per cent. Recall that the expectation was that the unemployment rate would be closer to 6 per cent now.

Anyway, jobs growth was only okay, not great – but then, there is no job shedding, and for the Reserve Bank board and other alarmists to be correct in their view, you need to see this. That said, there is evident caution there, or a reluctance to convert elevated hours into new jobs (noting there has been a structural decline in hours worked per person for decades now according these figures). I put this down to the extreme and unnecessary pessimism that pervades our market and that emanates from our policy makers and some business leaders. NAB had a survey out yesterday suggesting that business confidence was at its lowest since the GFC in the December quarter! Truly incredible given how different the world is from then, given the vast improvement that we’ve seen globally and given our still solid economic metrics.

In all seriousness, I’m actually beginning to think we should have had that recession many people were so desperate for back in 2009. Psychology is a strange thing, and maybe it would’ve helped people move on? Who knows. What’s happening here is truly weird though, there can be no doubt about that.

Moving on – today we see the Reserve Bank's statement on monetary policy at 1130 AEDT. I doubt we’ll see anything too major in that report. Chinese trade and inflation stats are due out I think either today or over the weekend – the calendar I’ve got isn’t that clear. Otherwise we see German trade data; Italian industrial production; and finally, for the US, the key data will be trade.

Have a great day and weekend…

Adam Carr is a leading market economist.

See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.

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