The ISM index dipped in February, to 52.4 from 54.1 which in a different world (late last year) would have sparked all kinds of carnage. As it is, it was risk on and that’s because other data generally showed the US economy picking up. That’s especially the case with jobless claims, which at 351,000, is the lowest in about four years.
It’s not so much that new claims fell drastically in the week to February 25 or anything – they were only off 2000 – it’s more the case that they’ve fallen sharply over the last couple of months and have been around the 350,000 mark for the third week. So the improvement can’t just be put down to volatility. The fall is a great signal that the US labour market is improving at a decent clip. The other issue of course is that the US consumer appears to be on the march. Chain store sales data showed very strong sales in February, with sales rising 6.7 per cent year-on-year, according to the ICSC.
Then in Europe, Spain and France auctioned off about €12.5 billion in debt – the Spaniards getting the 3-years out at a yield of 2.617 per cent, which is down sharply from the 3.32 per cent they paid in February (cover was at 2.37). That’s the 3-year LTRO in operation and in Italy, the 2-year yield fell below 2 per cent (at 1.758 per cent) for the first time since October 2010, which compares to a high yield of 7.92 per cent recorded only in November of last year.
All of that combined to see a solid bid for European equities – the Dax up 1.25 per cent, the CaC up 1.37 per cent, while the FTSE rose just over 1 per cent. The action is a little more subdued across the Atlantic, but US stocks are nevertheless seeing a reasonable bid. At close, the S&P500 was up 0.36 per cent, driven higher by financials, energy and basic materials (all sectors were up though). The Dow finished up 3.86 points (12956) with the Nasdaq up 0.6 per cent (2989). Earlier, the SPI was up 0.7 per cent (4292).
On the debt side, US treasuries sold off again and the curve steepened as the yield in the 10-year rose just over four basis points to 2.03 per cent and the 2-year yield dipped just over one basis point to 0.289 per cent. The 5-year yield was up about two basis points to 0.894 per cent. All in all modest moves given some of the inflation indicators overnight. In the ISM survey the price paid component surged six points to 61.5 which is well above the average of 51 for the last six months or so. Similarly, the PCE deflator shows US inflation accelerating, rising 0.2 per cent in the month to be 2.4 per cent year-on-year. Core prices also rose 0.2 per cent to be 1.9 per cent year-on-year (was 1.8 per cent year-on-year). Aussie futures were then offered, the 3s off four ticks to 96.26, while the 10s fell seven ticks to 95.84.
Naturally enough we then saw the Australian dollar push higher, albeit modestly to 1.0795 or 30 pips from 1630 AEDT. Euro in turn was off 30 pips to 1.3313, while sterling rose about 25 pips to 1.5948 and yen was little changed at 81.07. Commodities for their part have retraced some of the big falls we saw in the previous session. So gold is back up to $1720 which is little changed from 1630 AEDT but up about $30 from a low yesterday morning. Silver is then 2.6 per cent higher and copper gained 1.4 per cent. Crude surged with WTI rising 1.6 per cent to $108.8 and Brent up almost 3 per cent to $126.3 (largely due to Iran and better global economic data).
In other news and data the ISDA ruled that the Greek bailout was not a credit event and so wouldn’t trigger the $3.25 billion in outstanding CDS. US personal income then rose 0.3 per cent and spending was 0.2 per cent higher. The savings rate was down to 4.6 per cent from 4.7 per cent. Finally, US construction spending fell 0.1 per cent (a rise of 1 per cent expected) in January after a 1.4 per cent gain in December.
Looking at the day ahead, we get US vehicle sales this morning but not too much else. We also get Japanese and South Korean inflation numbers. Tonight watch out for German retail sales figures, eurozone producer prices, Canadian GDP and that’s pretty much it.