SCOREBOARD: Greek spotlight

The market reaction to news that Greece would get the second €130 billion bailout has been mixed so far, stocks in Europe actually fell – the Dax was off 0.6 per cent, the CaC off 0.2 per cent and the FTSE down 0.3 per cent – while the euro is down about 20 pips or so to 1.3243 (from 1630). Admittedly there are still concerns about how committed Greece actually is to reform, but these aren’t new. More broadly, and as I mentioned yesterday, investors are becoming much more relaxed about the European crisis. The hunt of for yield is picking up – which is why Italian and Spanish bond yields continue to fall (down another 4 or 5 basis points last night to 5.43 per cent and 5.1 per cent). Indeed Spain sold off over €2 billion in bills last night at yields averaging 0.396 per cent for the 3-month bills and 0.764 per cent for the 6-months. Cover was very strong at over 10 for the 6-months and 4 for the 3-months.

The big market moves seem to be in the commodity space and they look to be pretty much across the board. So gold is up almost $20 so far to $1755, silver is up over 3 per cent, as is copper (+3.4 per cent). More than other markets perhaps (and for last night at least) it appears that commodity punters took the view that with Greece out of the way, there’s not much in the way of downside risk. We’ll see how long it lasts but global growth was robust through 2011 (even better ex natural disasters) and it’s expected to remain so throughout 2012. Meanwhile, central banks if anything are trying to provide more stimulus (China most recently); which of course is extremely supportive of commodities more broadly. I don’t think we should be surprised at yesterday’s Aussie linker auction then. Strong demand saw the break-even at 2.8 per cent which isn’t indicating a disaster, but it is up sharply from the lows a couple of months ago (a bit over 2.4 per cent) showing rising investor concern over inflation.

Crude saw another solid boost overnight with WTI up 2.2 per cent ($105.5) and Brent up 1.1 per cent ($121.4). It was same factors as above providing support, clearly, with the added influence of Iran. Iran suggested last night that they would consider pre-emptive action if their interests were threatened which probably helped the crude bid.

Over to the US, stocks were up 0.5 per cent on the S&P at the high, but subsequently went offered. Health and consumer stocks weighed most heavy, while energy, basic materials and telecommunications stocks are outperforming. At the close, the S&P500 was 0.07 per cent stronger, at 1,362.21 points. The Dow for its part ended 15.82 points higher, or 0.12 per cent, at 12,965.69 while the Nasdaq was off 0.11 per cent (2948.57). Meanwhile our own SPI was down 0.7 per cent (4245).

As for US treasuries, they eased off and the curve steepened a touch as the 10-year yield rose 2 basis points (from 1630) to sit at 2.05 per cent, the 5-year rose less than one basis point to sit at 0.902 per cent while the 2-year was little changed at 0.298 per cent. Treasury’s $35 billion 2-year auction went well, with the bid-cover at 3.54 which is above the average of 3.42, while indirect bidders took 35.8 per cent versus 32.3 per cent previously. Aussie futures bounced around on a 6 tick range but ended little changed – the 3s at 96.32 and the 10s at 95.86.

Not much else to report. So looking at the day ahead, we get wage prices for Australia at 1130 AEDT and the market looks for a gain of about 0.8 per cent. Wage pressure remains contained at this point but has been and is expected to continue rising. At 1300 AEDT, New Zealand puts out credit card spending and we get the ‘flash’ China manufacturing PMI from HSBC at 1330 AEDT. Tonight, look out for the EC PMIs, EC industrials orders, the BoE minutes and existing home sales out of the US (January data).

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

Follow @AdamCarrEcon on Twitter

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"It appears that commodity punters took the view that with Greece out of the way, there'’s not much in the way of downside risk". (SCOREBOARD: Greek spotlight, February 22.) On which planet do these commodity punters reside? That proverbial can has been kicked further down the street. It is getting very dented and very large. Greece has simply conned the ‘experts’ into giving them bailout that they need to kickstart their own new foray into the drachma mach II. Does anyone honestly think for one moment that Greece is going to ‘work’ it’s way out of this. Their economy slid more than 7 per cent in the last quarter and 50 per cent of small businesses are either bankrupt or heading full speed toward it. The new deal is supposed to reduce the debt to 120.5 per cent of GDP by 2020. Hello! How is even that sustainable? Greek citizens are being made destitute and being slung into the poor house at breakneck speed by the stand-over Northern Europeans who want to keep their corrupt banking and tilted political gig rolling along. The end to this saga is rapidly closing in now. The wheels are about to fall off this massive debt-ridden and corrupt European cart and carry with it massive personal and financial grief on a global basis.
Just so I understand, how is Greece expected to maintain their debt at 120 per cent of GDP when the measures introduced are going to have a severe impact on their economy? (SCOREBOARD: Greek spotlight. February 22.) With the likelihood of a socialist government being elected watch for some real trouble here in the coming months.