The positive sentiment out of the Asian equities sessions yesterday was not followed once markets opened in Europe and then the U.S overnight. With limited data out it was left to developments in Italy which focused on the results of their Bond auction to govern market sentiment. And the results from the auction did little to inspire any confidence with as Italy selling 3 billion Euros of 5 year notes at a yield of 6.29% which is up from 5.32% in the previous auction. This was also matched with Spanish ten year bond yields edging over 6% - a negative sign ahead of tomorrow night’s short term debt auction. The bailout in Greece was meant to ring fence the debt focus yet eyes have just shifted straight to Italy as contagion concerns remain the primary theme. Key European indices such as the Cac40 and Dax were down just over 1% while the Dow and S&P followed down just under 1% as market jitters continue. The USD made strong gains as risk assets were sold down, with the Euro, Aussie and Pound all slipping more than 1.7 cents each from yesterday’s open.
The ongoing concern of debt in Europe is overwhelming a key market driven issue of how far the region will fall into recession amid the austerity measures being implemented by countries in the Eurozone. European industrial production came in close to predication at -2% for September, which continues the negative run of data out of Europe from the past month with the degree of the size of the fall into recession the only debatable point. The political uncertainty only heightens this issue with all European Governments under pressure to pass any unpopular legislation. We have a raft of GDP data out tonight from Europe with only marginal growth expected from median estimates further illustrating the recession concerns.
This morning’s Monetary policy minutes are the key market moving event for the local session, with an expectation for the minutes to reflect this month statement issued with the rate cut of a move to a more neutral monetary policy stance. Nevertheless, the question remains at what benchmark the RBA deems to be neutral? – Clearly market participants will be watching for further comment to suggest another interest rate cut is on the horizon. RBA assistant Governor Phillip Lowe said in an address last week in Melbourne that local “Interest rates are broadly neutral, neither expansionary of the economy or contractionary of the economy.” At the time of writing the Australian dollar is just ticking past 102 US cents.