The Overnight Report: Rumours Fly

This story features AURUMIN LIMITED, and other companies. For more info SHARE ANALYSIS: AUN

By Greg Peel

The Dow closed down 37 points or 0.3% while the S&P fell only 0.1% to 1306 and the Nasdaq actually closed 0.6% higher after two days of sharp drops.

It was an unusual start to the session on Wall Street last night – unusual because the economic data were poor and that has not been the trend of late. New durable goods orders rose 2.7% in January but only because of lumpy aircraft orders. Ex-aircraft, orders fell 3.6%. Sales of new homes in January fell 12.6% from December but analysts noted the impact of heavy snow. New sales are down 18.6% year on year.

Economic data and lingering earnings reports have nevertheless taken a back seat this week. It's all been about Arab uprisings, and Libya is currently the centre of attention. Given the lack of access to Libya for foreign press, the only source of information has been the flow of Twitter commentary. Welcome to the new world.

The early rumour flowing was that Gaddafi had chemical weapons and was prepared to use them. Brent crude jumped more than US$8 at one point to almost US$120/bbl. The Dow fell over 100 points.

But at 2pm a new rumour circulated that Gaddafi had been shot. Everything spun on a dime. There has been no confirmation of the rumour but Brent ultimately closed up only US$2.45 to US$113.75/bbl and US stocks retraced the bulk of their falls. Precious metals plunged on the news. Having traded slightly higher to that point, gold fell US$12.50 to US$1397.50/oz and the more volatile silver crashed 4.5% or US$1.51 to US$31.97.

The drop in oil continued into the after-market session, sending Brent down on the day to just over US$110/bbl. London base metals nevertheless close at 2pm New York and they were mostly weaker. Copper was down slightly but nickel fell 2.5%. Further fuelling oil's pullback was commentary out of the White House reminding traders that the government held significant strategic reserves which could be released to calm markets if necessary.

The trend in currency movements nevertheless remains largely consistent. The US dollar is falling against the pound and the euro given rate rises are expected in both centres before too long and well before any rate rise is talked about in the US. The Swiss franc continues to play the role of safe haven instead of the dollar and last night the US dollar fell to almost an all time low against the Swissy. The dollar index is down 0.4% to 77.11 and the Aussie is up 0.7% to US$1.0098.

Over in the bond market attention focused on the Treasury US$29bn auction of seven-year notes, following on from Wednesday's weakly received auction of fives. Demand was better for the sevens, but not substantial, and the benchmark ten-year yield fell three basis points to 3.46%.

The VIX volatility index also had a rollercoaster ride last night, finishing the session down 5% to 21.1.

The longer unsubstantiated rumours flow from the Arab world, the more whip saw action we will see in markets which are running mostly blind. As I write, CNBC is maintaining that the rumour of Gaddafi's demise is still the talking point but that there is simply no confirmation either way. In the meantime, it was officially announced last night that the Algerian government has ended its two decade-long state of emergency as a concession to the Opposition and as a step towards implementing social reforms. The decision follows on from Wednesday's news of a US$36bn social package offered by the monarchy in Saudi Arabia. Nervous Arab governments are clearly looking to Egypt and Libya as good cause to be proactive in quelling unrest. Iran is nevertheless still smouldering, and the real swing factor in the global democratic push will be China.

The SPI Overnight fell 14 points or 0.3%.

Today's local profit report highlights include Austar ((AUN)), Transfield ((TSE)) and Woolworths ((WOW)). For the extended list please refer to the FNArena Calendar. 

[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]

Click to view our Glossary of Financial Terms