The Overnight Report: She’s Apples

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By Greg Peel

The Dow closed up 25 points or 0.2% while the S&P added 0.8% to 1207 and the Nasdaq added 0.8%. NYSE volume was a respectable 1.1bn.

It was a session in which the blue chips clearly underperformed, as evident in the split of gains between the Dow and S&P 500. The S&P retook Hill 1200 following a broader-based round of positive earnings reports.

First cab off the rank was Goldman Sachs. If ever the world's leading “investment” (it is now mandatorily commercial) bank did not want to post a bumper profit in a quarter, it was this quarter. Joe Public is already seething over the fraud charges, and excessive profits would just add fuel to the fire. But excessive they were.

Goldmans posted a profit of US$3.3bn or US$5.59 earnings per share against the Street's average expectation of US$4.16. Proprietary trading profits were up 43% from last year. Despite the “beat”, Goldmans shares lost 2% last night. It was not really a popular win.

Outside of Goldman's world, smaller regional banks posted well-received results last night with a feature being a reduction in loan losses. Consumer discretionary was also in the frame, with good results from the likes of mid-range fashion house Coach and hog-farmer Harley Davidson. Illinois Tool Works also did well to show a breadth of earnings recovery.

The Dow was nevertheless impacted by the poorly received result from IBM, which saw its shares down 2%, and a revenue miss for sugar fairy Coca-Cola which continues to suffer from weak sales in North America. Damn those nutritionists!

But in what should prove another boost tonight for the Nasdaq and the consumer discretionary market in general, after last night's bell iThings purveyor Apple reported earnings per share of US$3.33 on revenue of US$13.5bn against estimates of US$2.45 on US$12.0bn. It was a 90% profit increase on last year, and analysts were nothing less than impressed that all of the Mac, iPod, iPhone and even the fledgling iPad showed strong sales.

Apple's sales included a 60% offshore contribution, and Apple shares are up 6% in the after-market. Ahead of the earnings season analysts had targeted consumer discretionary as one sector ready to surprise to the upside, and so far that appears the case. But one has to concede that Apple is close to unique.

There were no major US economic releases last night to either spoil or enhance the party.

But it was all happening on the currency front. By the end of the session, positive earnings helped the US dollar index to a slight tick up to 81.02. The index had to fight the Canadian looney, which rose when the Bank of Canada left its cash rate steady at 0.25% but removed an earlier commitment to keep rates low through to mid-2010. The Reserve Bank of India has no such commitment, and it went ahead with another rate rise yesterday.

Australia showed how one word can make a world of difference when suddenly the word “gradual” disappeared from the RBA minutes. The removal suggested to economists a rate rise in May is now a given, and so the Aussie jumped 0.8 of a cent to US$0.9322.

But the euro is still struggling to make any headway as Greece continues to weigh. Last night the president of the German central bank suggested a Greek bail-out was going to require more than the 30bn euros currently on offer, while an auction of 2bn euros worth of Greek 13-week bills yielded 3.65%. With the “bund” at around 3%, this means the world would rather pay more to lend money to Germany for ten years than it would to lend money to Greece for three months.

Anyone who watched last night's Foreign Correspondent on the ABC would now appreciate just how intensely corrupt and tax evasive the Greek market economy is, and just what sort of anarchy will likely reign as austerity measures are stepped up. The country is a basket case that has been sucking up free money from the EU ever since it joined the eurozone. Why the EU voted it into the eurozone in the first place is anyone's guess, but it just serves to highlight the folly of the concept that is the European Union. The clock is ticking.

The news from the Arctic Circle is mixed, with the new ash cloud seemingly not as much of a renewed threat as first thought and a handful of airlines now resuming some flights, whether through a perception of diminished risk or sheer bloody-mindedness. We can only wait to see what Volcano Unpronounceable has left.

The commodities markets were happy to focus on the positive implications from ongoing US earnings reports. Oil was stronger for once, but the 2.5% jump in the May delivery contract (by US$2 to US$83.45/bbl) was as much about expiry day as anything else, as May pushed up to close the gap on the June delivery contract which becomes the front month as of tonight. June oil rose only US72c to US$83.85/bbl last night.

Base metals were stronger in London, although copper is still struggling to make real headway. Tin and zinc were up over 1% while lead posted a 4% gain.

Gold rose US$5.20 to US$1140.40/oz.

The SPI Overnight took its lead from the S&P 500, rising 44 points or 0.9%.

Stand by today for Australia's leading economic indicators, courtesy of Westpac, and for the BHP Billiton ((BHP)) quarterly production report.

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