SCOREBOARD: US independence

US equities made gains overnight despite the poor market performance and political manoeuvring seen in Europe.

Stocks got a decent bid on Wall Street overnight following another sluggish session in Europe. It’s not that any of the news flow from Europe was bad or anything, indeed most of it on balance, was good – well should have been regarded as good in this crack addicted market.

Specifically, Mario Draghi reiterated that the ECB was ready, willing and able to buy unlimited amounts of European bonds, although they didn’t actually print more money or cuts rates (their monthly meeting was last night). Maybe that’s the problem – that and the fact Spain hasn’t actually asked for a bailout yet.

On that note, people may be waiting a while, as it seems the finance minister doesn’t think Spain actually needs one, which is right when you look at the math. Spain is not insolvent and can easily pay debt at reasonable rates. It’s more the case that markets are prone to bouts of fear and panic – and so the taps dry up.

It’s quite possible that if yields keep coming down they may not ask for a bailout at all. The whole self-fulfilling thing – yields rise too high, they’ll ask for one. That being the case, Spain is managing to raise money from the market and at lower rates – so they got out €4 billion on the 2,3 and 5-year bonds, with the 5-year notes at 4.75 per cent from 6.45 per cent in July.

Despite this, yields further along the curve pushed out, with the 10-year rising 14 bps to 5.86 per cent (recall the ECB is only prepared to buy up to 3-year bonds) and stocks weakened – the Dax off 0.2 per cent, the CaC down 0.1 per cent while the FTSE 100 was flat.

US markets ignored the European lead though and were bid up at the open, with nearly all the session’s gains made in in the first couple of hours.

Stocks literally just bounced around for the rest of the session and closed 0.6 per cent higher on the S&P500 (1461) and Dow (13575). The Nasdaq rose 0.5 per cent (3149) while the Australian SPI was 0.2 per cent higher. Not too much that I can see that drove it.

Data wasn’t all that market moving – so jobless claims rose to 367,000 in the week to September 22, from 363,000 and then the Fed’s minutes didn’t reveal much either (the Fed printed because of worries over jobs, Europe etc) and there was no obvious impact on the market.

The more interesting price action was on crude: bizzario again, bouncing off the $87 mark and spiking back to $91.6 (for a gain of 3.9 per cent). Supporting factors for the session were some conflicting commentary from OPEC members, the Saudis saying they want lower prices, and Iraq suggesting they were pretty happy with higher prices. The other issue is that Turkey and Syria look closer to a conflict after some border skirmishes and shelling – Turkey’s parliament also approved a measure enabling the government to send troops into foreign countries.

Price action elsewhere was nondescript. On the rates side, we saw the 10-year yield rise 5 bps for the session (1.67 per cent), the 5-year was 3 bps higher (0.62 per cent) and the 2-year sits at 0.24 per cent. Australian futures then lost about 6 ticks on the 3s (97.62) and the 10s (97.055). Otherwise, the Australian dollar was up a few pips to 1.0243, the euro was 70 pips higher (1.302) , sterling was up 50pips (1.6196), while yen sits at 78.48.

As to the calendar today, there isn’t a lot in our region. There’s a speech from the Fed’s Bullard on the US economy this morning, but otherwise there’s no action till tonight.

Payrolls are the main event and the market looks for an increase of 130,000 while the unemployment rate is expected to rise to 8.2 per cent. Other than that German factory orders are worth watching.

That’s about the lot, 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.

@AdamCarrEcon on Twitter.

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