The Overnight Report: Wall Street Healthy

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By Greg Peel

The Dow closed up 43 points or 0.4% while the S&P gained 0.5% to 1165 and the Nasdaq added 0.9%.

Late Monday night New York time, the lower house of Congress passed the most recently abridged version of President Obama's healthcare reform bill – a bill laudable in intent but poor in its timing – while outside protesters made visceral taunts warning of America becoming another Communist France.

Traders subsequently tried to short the healthcare sector from the opening bell but found no support, and were forced to quickly turn tail and cover. The healthcare sector became the biggest gainer on the day, which is testament to both the concessions achieved by Big Pharma in this watered down version of the original bill and the relief felt by Wall Street now that it appears the dark cloud of uncertainty hanging over the markets for over a year now might soon be lifted. It's not over yet, however, despite the “historical” headlines. The bill still has to pass through the Senate.

The Dow posted a new post-GFC high, but once again volume was minimal. Sellers are simply unable to gain any traction in this market given a lack of widespread conviction and thus only negative gravity seems to be dragging Wall Street incrementally higher.

The US dollar index ticked down slightly last night to 80.63 as forex traders covered their euro shorts ahead of Thursday's meeting of European Union members. A rift has formed in the EU as the big players argue over whether or not the IMF should be involved, and whether or not Greece should simply be cut loose. ECB president Jean-Claude Trichet spoke out against the latter solution last night. The forex market is squaring up ahead of the meeting's uncertain outcome.

The dollar's drop came late in the session after initial gains. Base metals had fallen early in London but recovered losses toward the end of their session to be mixed and little changed. Gold also recovered from what looked like a trader-led attack on US$1100, trading as low as US$1094 before clawing back to be down US$5.70 at US$1101.50/oz.

It is interesting to note from five-year gold chart that we are currently facing a familiar pattern – one in which gold spikes rapidly to new highs early in the year, crunches back and then consolidates for a period at a new support/resistance level. The levels of US$700 and US$900 have proven difficult nuts to crack over this period and our arithmetic sequence looks intact now that US$1100 is the new centre of gravity. To break up convincingly from here would require either the US dollar to drop sharply or Europe to splinter, given the winding down of the Asian gift seasons at this time typically ushers in the dark side of the moon of demand until around September, suggesting lower prices.

It was the expiry of the April delivery crude oil contract last night and the longs won by pushing oil up US57c to US$81.25/bbl. There's little contango in the curve at present, given the equivalent May contract, which becomes the front-month tonight, closed at US$81.60/bbl.

The corporate buzz on Wall Street last night was all about Google's threatened withdrawal from China. Last night Google began redirecting traffic on its Chinese site to its Hong Kong site where it hopes to avoid the government censorship which is part of the problem (along with intellectual property theft). But management's announcement seemed resigned to the fact the Chinese government would block access nevertheless. Hong Kong is no longer a British enclave.

In economic news, the Chicago Fed national activity index fell from minus 0.04 in January to minus 0.64 in February. This zero-neutral index is providing further evidence that the US economy is not exactly booming, and is indeed struggling to gain traction despite the “lead indicator” of the Wall Street indices.

Yesterday brought news that Rio Tinto ((RIO)) executives Stern Hu and his Chinese counterparts have pleaded guilty to bribery. Given the spurious nature of the Chinese legal system we will never know whether the pleas are indeed true or, if true, if the executives have simply become unfortunate scapegoats of systemic corruption and pawns in the game of iron ore price negotiations. The Australian government is hardly going to argue.

The Aussie clawed back some ground against the dollar to US$0.9197.

The SPI Overnight rose 26 points or 0.5%.

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