SCOREBOARD: US risk

The roller coaster continues and sentiment took a hit last night – not a lot in the way of catalysts though. Some of the economic data was a little bit weaker than expected – notably the non-manufacturing ISM which came in at 50.5 when 51 was expected (from 50.1). Yet when we're talking decimal points, I really don't think it's that important. In any case, the ADP employment report came in better than expected with 22k jobs lost from 61k in December (-30k expected). That result will probably buoy those looking for a positive payrolls report this Friday – indeed the median market expectation is for a rise of 15k.

Some disappointing earnings results in the financial and healthcare space weighed – both those sectors leading the index down – and there are probably lingering concerns over sovereign default (Greece, Portugal) with Moody warning the US that their AAA rating would come under pressure unless the deficit came under control.

With that to contend with, the S&P500 was down 0.4 per cent (1097). Most sectors fell, although tech stocks were the exception and the Nasdaq was up 0.1 per cent (2192). Otherwise the Dow was off 15pts to 10281 while the SPI fell 0.4 per cent (4590).

On the commodity and FX front action was limited. Oil was down 0.4 per cent to $76.96, gold off $4 to $1110, while base metals were mixed – copper down 3 per cent, nickel up 0.3 per cent and zinc 0.6 per cent. The Australian dollar is sitting at 0.8834 down 20 pips or so. The euro is off 50pips to 1.3905, sterling is off 80pips to 1.5906 – hit harder because the services PMI dipped to 54.5 in January from 56.8 – while the yen is at 91.06 from 90.45.

On the rates side, the Treasury said it will hold all three refunding issues next week steady at their November levels. So $40bn 3-yrs, $25bn 10-yrs and $16bn 30-yrs – all for new cash of $33bn. I think these concerns over sovereigns and the prospect that we could get a positive payrolls report on Friday saw the major coupons sell off a little. The curve steepened a touch as the yield on the 2-yr rose 1bp to 0.87 per cent, the 5-yr yield rose to 2.4 per cent ( 3bps) and the 10-yr yield rose to 3.69 per cent ( 4bps). Aussie futures traded on an 8 tick range to sell of 5.6 ticks from 1630. The 3s are at 95.17 and the 10s at 94.43.

Eco data out today kicks off with kiwi employment numbers at 0845 for Q4. The market is looking for a fall of -0.1 per cent while I'm forecasting a flat result. QES earlier in the week suggests considerable upside to that nevertheless. The unemployment rate is forecast to rise to 6.8 per cent (I'm at 6.7 per cent) from 6.5 per cent. Aussie retail sales at 11.30 are expected to moderate from the very strong pace record in November 1.4 per cent.

A retracement is expected simply because of the strong pace of spending of late – consequently it would be incorrect, as I'm sure some will, to interpret any softness today as proof of a slowing. Just note there is a bit of confusion regarding the median – some surveys have it at -0.2 per cent some at 0.2 per cent. Neither here nor there really – my forecast is for a flat result. For the December quarter, sales volumes are expected to rise a strong 1.1 per cent.

Tonight's flow includes the BoE and ECB meetings (no changes expected at 0.5 per cent and 1 per cent respectively). In the US watch out for Initial jobless claims, factory orders and productivity.

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