\n\tBy Greg Peel<\/p>\n
\n\tOf 90 banks stress-tested by the European Banking Authority – the second such testing since the initial Greek implosion of 2010 – eight failed and sixteen went close. This a positive result, and should help to ease fears in the eurozone<\/span>, but it hasn't really. As I predicted, markets have again queried just what sort of “stress” is being applied, and note that the test parameters were set before the recent Italian scare.<\/p>\n \n\tThe accusation last year was that the tests were set with the intention of a majority pass in order to stabilise<\/span> markets. Last year, seven of 91 banks failed. Whether or not this is the case again, the results did nothing to reduce the steeper bond yields experienced last week by Spain and Italy, along with the Troublesome Three. The euro managed to rally only slightly, leading the US dollar index down 0.1% to 75.13.<\/p>\n \n\tOn the release of the test results, the European Council called another meeting of eurozone<\/span> leaders for Thursday in Brussels. European leaders never seem to learn, believing pig-ignorantly that if they suggest they're not concerned about an issue, then it will go away. Last week saw a meeting in Brussels to organise<\/span> the next Greek bail-out and the suggestion was “Italy was not even discussed”. But lo and behold the agenda for this week's meeting is “the financial stability of the euro area as a whole,” as well as further discussion on Greece. Seems the markets haven't been appeased by the officials' ingenuous dismissal after all.<\/p>\n \n\tIdiots.<\/p>\n \n\tSpeaking of idiots, markets are also becoming ever more incensed over the inability of the US administration and Congress to reach a debt ceiling agreement. There appeared to be a break-though last week but it was a false alarm. I still believe no side will give an inch until the absolute last minute in the hope it will be the other side that backs down. Standard & Poor's has now joined Moody's in warning a downgrade will come if no resolution is reached. Perhaps the government should realise<\/span> history shows AAA ratings can be had at a price.<\/p>\n \n\tWall Street was strong out of the blocks on Friday night, boosted by Google's late Thursday result which sent its shares up 12.5% from the Thursday closing price and drove the Nasdaq<\/span> 1.0% higher in the session. Citigroup posted a result before the bell which beat on the earnings line, but closer inspection showed a lack of quality, with provision returns providing the bulk of the 24% lift in profit.<\/p>\n \n\tIt was a busy night for US economic data. The June CPI was impacted by a big fall in the gasoline price over the month, and it came in at minus 0.2%. While this might imply the sort of disinflationary<\/span> indication needed for QE3<\/span> to be implemented it isn't, because the core (ex food & energy) reading rose 0.3% for the second month in a row. Economists are concerned that core inflation is sticking at a time when the economy is clearly slowing. Industrial production rose in June following two negative months, but at 0.2% growth fell well short of 0.5% consensus expectation.<\/p>\n \n\tThe reading on the Empire State manufacturing index also improved, but only to minus 3.8 from minus 7.8 last month. So manufacturing activity in New York State is still contracting. And if you think us Aussie consumers have given up the ghost we're not alone – the Michigan Uni<\/span> fortnightly consumer confidence gauge<\/span> plunged to 63.8 from 71.5 to mark its lowest level since March 2009.<\/p>\n \n\tOn all of the above, the 67 point opening rally in the Dow immediately evaporated into a 20 point drop. Some rocking and rolling followed and eventually the Dow closed up 42 points or 0.3% while the S&P gained 0.6% to 1316.<\/p>\n \n\tThe winner last week was gold, which has been rising against all currencies since Italy entered the game and has breached new territory. Friday saw gold add another US$7.10 to US$1594.10\/oz and traders note a large open position in Comex<\/span> 1600 calls which seems to be sucking the metal upward. The warning now is that a market-appeasing move in Europe could see gold suddenly tank.<\/p>\n \n\tWhile silver added 3% to US$39.27\/oz, base metals are again in one of their indecision moods, weighing up supply tightness against weakening global demand and the fragile macro outlook. Movements were mixed on Friday of around 1%. Brent oil was steady at US$118.34\/bbl<\/span>, allowing the spread to close in a bit on a US$1.80 rally for West Texas to US$97.49\/bbl<\/span>.<\/p>\n \n\tThe Aussie dollar was slammed late on Friday after a report was issued by Westpac's economists explaining a complete reversal in their monetary policy expectations. Having once been among the August rate rise camp, Westpac now predicts the next RBA<\/span> move won't be till December and what's more, it won't be up.<\/p>\n \n\tThe keepers of the monthly consumer confidence index are simply gobsmacked<\/span> at how weak the reading has become, and they are also expecting fear arising from the European debt crisis to linger for a long while yet. At 4.75%, the RBA<\/span> has described its current setting as “mildly restrictive”. While recognising<\/span> weakness in household spending and other parts of the economy, the central bank has remained steadfast in its expectations of surging resource sector profits and subsequent inflation.<\/p>\n \n\tWestpac now suggests the weakness in the rest of the economy will outweigh any resource boom positive, and that the RBA<\/span> will be forced to cut by 25bps<\/span> in December and to continue to cut in 2012 for a total of 100bps<\/span>. The interest rate futures markets had already begun to factor in such a view.<\/p>\n \n\tThe Aussie is down 0.8% to US$1.0639 and the SPI<\/span> Overnight gained 17 points or 0.4%.<\/p>\n \n\tThis week represents on of the busiest in the US quarterly result calendar, with 14 out of 30 Dow stocks reporting and 130 of the S&P 500. Banks such as Goldman Sachs and Bank of America (Dow) are in there, along with techs such as Apple and Intel (Dow), telcos<\/span> such as Verizon (Dow) and staples such as Coke (Dow).<\/p>\n \n\tExpectations are still very positive, albeit Morgan Stanley, for one, has pulled back its earnings growth forecast to only 7%, which is weaker than the March quarter result. Yet MS is pencilling<\/span> in 17% growth for the September quarter so there remains a pervasive view in the US that the second half will see much improvement. And the Fed agrees.<\/p>\n \n\tOn the economic front, it's housing week in the US with the housing sentiment index out tonight, housing starts tomorrow night, existing home sales on Wednesday and the FHFA<\/span> house price index on Thursday. Thursday also sees the Philadelphia Fed manufacturing index and the Conference Board leading index.<\/p>\n \n\tIt's a quieter economic week in Australia, with vehicle sales out today, the Westpac leading index out on Wednesday and NAB's June quarter business confidence measure on Thursday. Tomorrow the RBA<\/span> will release the minutes of its July policy meeting – the one that at least had economists suggesting 2011 may not even see a rate rise. But the meeting was held before last week's release of June business confidence and consumer confidence, both of which were very weak, and the big profit downgrade from retail bellwether David Jones ((DJS)).<\/p>\n \n\tElsewhere in the world, markets will be watching the two important eurozone<\/span> monthly surveys, being the ZEW<\/span> on Tuesday and the IFO<\/span> on Friday, while on Thursday HSBC will release its “flash” estimate for China's July manufacturing PMI.<\/p>\n \n\tOn the local stock front the resource sector quarterly production reports continue, with Western Areas ((WSA<\/span>)) reporting today, OZ Minerals ((OZL<\/span>)) and Woodside ((WPL<\/span>)) tomorrow, BHP<\/span> Billiton<\/span> ((BHP<\/span>)) on Wednesday and Newcrest<\/span> ((NCM<\/span>)), Santos ((STO<\/span>)) and PanAust<\/span> ((PNA<\/span>)) on Thursday.<\/p>\n \n\tUnder the microscope will be the pace of production recovery from the March quarter weather disruptions and the extent at which costs have risen. Last week's early reports showed the answer to the former, so far, is “slow” and to the latter is “a lot”.<\/p>\n \n\tRudi will not appear in his usual time slot of Thursday at noon for his Lunch Money appearance on Sky Business as he will travel to the Gold Coast this week for a presentation to local investors. Should be fun (?).<\/p>\n