SCOREBOARD: What a Draghi

Europe took centre stage last night, well specifically the European Central Bank and while the Bank left rates unchanged at 0.75 per cent, the outlook was revised down.

Mario Draghi, the ECB's chief, said that growth in the eurozone would likely shrink again next year by 0.3 per cent – down from forecast growth 0.5 per cent. Inflation was also revised down to 1.6 per cent from 1.9 per cent which, some argue, would free up the bank to cut rates again if they choose.

Although what good they hope that would do is unclear – the cash rate is at 0.75 per cent, so further cuts make absolutely no difference given monetary policy is ineffective at ultra-low rates. I mean if 0.75 per cent isn't doing much to stimulate growth, 0.5 per cent or 0 per cent won't either.

It wasn't all bad news though as the ECB did note that some indicators had stabilised, financial market sentiment had improved as had business confidence. The bank kept in place its program of offering unlimited liquidity to the financial system and said this would remain in place till at least the middle of next year.

The net effect of all of that was that the euro fell to 1.2956, although stocks markets took Draghi's comments in their stride.

In fact stocks had a strong session in Germany, up 1.1 per cent on the Dax, but they had the advantage of some strong data. German factory orders surged almost 4 per cent in October offsetting a fall of 2.4 per cent the month prior and beating expectations of a 1 per cent rise. Elsewhere the CaC was 0.3 per cent higher, while the FTSE100 rose 0.2 per cent.

US markets were less than enthused at this point, even after a report came out showing US jobless claims fell from 395,000 to 370,000 in the week to December. The Cliff!

Soon after the open, the major indices were weaker and while they recovered somewhat, gains are tentative as I write. With about an hour to go, the Dow is only 18 points higher, or 0.1 per cent to 13053, the S&P500 is 0.2 per cent higher at 1411, while the Nasdaq is outperforming, rising by 0.5 per cent to 2988.

Tech stocks were a key outperformer across the indexes – shares like Intel, Cisco and Apple all up over 1 per cent. Otherwise industrials, energy and basic materials all had a lacklustre session, the latter two weighed down by a 1.9 per cent fall in crude, to $86.20 and a 1.2 per cent fall in copper. Gold rose about $4 to $1700.

In the forex space there wasn't a lot of movement outside the euro. The Australian dollar is at 1.0473, sterling is at 1.6049, while yen is at 82.35.

Similarly there was zip on the rates side. Treasuries did little and yields are little changed – the 10-year Treasury yield is at 1.582 per cent, the 5-year is at 0.59 per cent, while the 2-year sits at 0.24 per cent. Australian futures followed suit, with the 3s at 97.4 and the 10s at 96.955.

Bits and pieces otherwise. Eurozone GDP was confirmed as falling 0.1 per cent – broad-based falls, but investment is particularly weak.

Then in Italy, Silvio Berlusconi was out undermining the government by staging a mass walkout during a senate debate on growth measures – the measures passed a vote though.

Having said that, Italian and Spanish yields pushed higher – the Italian 10-year was up 12 bps to 4.52 per cent, while the Spanish equivalent was 7 bps higher to 5.44 per cent.

Then in the US, Treasury Secretary Geithner said that Obama was prepared to go over the cliff if negotiations fail and that the GOP doesn't agree to tax hikes. The White House is also seeking authority to set the debt limit themselves.

Very quickly on those jobs numbers – the first thing to note is that they are good. The 14,000 lift brings year-to-date jobs growth to 150,000 or thereabouts. This is pretty much average growth – two-thirds of that full-time jobs. Moreover, hours worked rose and remain quite elevated.

Taking stock, we've had two tier 1 releases out this week and both show the economy growing at least at trend. It's also worth mentioning that participation rate again, given the concern many expressed about it.

As I mentioned some months ago, it's falling because baby boomers are retiring. As a personal anecdote I know several people who had delayed retiring due the GFC, having rebuilt wealth, the time had come. So the participation rate was probably inflated to begin with. It's not surprising to see that correct.

So to the day ahead. The SPI suggests Australian stocks will rise 0.3 per cent. Then we see Australian trade data at 1130 AEDT and the consensus is that the trade deficit will rise to $2.2 billion from $1.5 billion. There isn't much else for our region.

Tonight, payrolls are the key release and forecasts suggest 100,000 jobs were created, although there's a high degree of uncertainty around this number due to recent storm activity. Expectations are that the unemployment rate will stay at 7.9 per cent. Other than that it's worth watching out for US consumer credit figures, Michigan Uni's consumer confidence measure and industrial production figures out of Germany and the UK.

Have a great weekend…