The Overnight Report: April High Again Proves Resistant

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By Greg Peel

The Dow closed up 31 points or 0.3% while the S&P added 0.2% to 1185 and the Nasdaq rose 0.5%.

From the opening bell last night the Dow rapidly rose 115 points to 11,247 – a point which exceeded the previous April closing high of 11,205. Had Wall Street held the gain the Dow would have registered a new two-year high and thus its highest level since Lehman. But alas.

Clearly the April peak is now staunch resistance for the market and while the Dow fell back ultimately to 11,164 on a late selling wave, the broad market S&P 500's close of 1185 suggests another 2.7% gain required to reach its April closing peak of 1217.

Wall Street was heartened, if not completely comforted, by the news over the weekend that the G20 finance ministers had agreed to keep trade balances in check to avoid further currency battles. But without specific metrics, many found the agreement hollow. Perhaps more could be made of the emerging countries' greater representation on the IMF (See: The Beginning of the End of the Currency War?).

What really provided the early boost on Wall Street was a surprise 10% jump in sales of existing homes in September to 4.53m. Economists were expecting 4.39m. Mind you, that's where the good news ends.

September 2009 was a month in which existing home sales were surging, driven by government tax credit stimulus. September 2010's number was 19% below this figure, and month on month the median home price fell 2.4% to US$171,700 (about the price of a Sydney phone box). Lower prices have been credited for the jump in sales, and distressed sales represented 35%. That figure was 34% in August and 29% in September 2009.

This is not the stuff of a clear housing recovery, and all the while US bank share prices have been slowly sinking on ongoing concerns over mismanaged foreclosures and misrepresented CDO law suits. Analysts now suggest, nevertheless, that recent weakness is overdone.

Meanwhile the Chicago Fed national activity index fell to minus 0.58 in September from minus 0.49 in August. This zero-neutral index never gets much higher than plus one and hit minus 4 as we entered 2009.

Not a lot in the above to suggest the Fed might change its mind about QE2 at the eleventh hour.

Mondays are not big reporting days in the earnings season but small after-market losses are being felt by pharma giant Amgen and semiconductor leader Texas Instruments. Tonight's highlights include Ford (Dow), Swiss investment bank UBS, US Steel (Dow) and Western Union.

Having squared up ahead of the G20 meeting, traders went back to selling the US dollar last night to push it down 0.3% on its index to 77.15. The Aussie, on the other hand, rocketed back a cent to US$0.9912.

The Aussie's jump occurred in local time yesterday on the release of the third quarter producer price index which at 1.3% up on the headline, blew away expectations of a 0.5% jump. Rising producer prices tend to be a precursor for rising consumer prices, albeit possibly with a lag, but then margin movements mean the PPI-CPI relationship is not always cut and dried. Nevertheless, the market took the number as sufficient confirmation the RBA will be forced to raise on Cup Day.

This will be interesting. If Wednesday's CPI figure is as much as a surprise as the PPI figure we might just see parity. At what point above parity does the RBA decide not to raise, given the disinflationary effect of a strong Aussie? And if it doesn't, where will the Aussie fall to? Over there's a rock and over there somewhat of a hard place.

The weaker greenback led unsurprisingly to standard commodity price movements, with gold up US$11.40 to US$1339.40/oz, oil up US83c to US$82.52/bbl, and base metals all up 1-2% in London.

After the ASX ((ASX)) takeover-inspired surge on the local bourse yesterday, the SPI Overnight was down 18 points or 0.4%.

NAB will release the September quarter summary of its business confidence survey today while tonight in the US sees more house price data, consumer confidence, and the first of this week's US Treasury bond auctions.

Tonight will also represent one week out from the US mid-term elections. It is currently assumed Wall Street has “baked in” a return to Republican majority in the House, but the jury is still out on whether or not the GOP can also take the Senate. How long will it take to count the votes? The next day is QE2 day.

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