The Overnight Report: Adrenalin Shot?

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By Greg Peel

The Dow rose 123 points or 1.0% while the S&P gained 1.1% and the Nasdaq leapt 1.5%.

As the sun set on the Asian zone and began to rise in Europe last night the mood was very sombre on heightened expectations that Greek default was now nigh. The German finance minister had referred to Greece as a “bottomless pit” into which his country was not prepared to pour more money without strict control. This comment sparked much anger from the usually unseen Greek president Karalos Papoulias – the man who has presided over Greece's slide into to corruption, laziness and excess. Bite me.

European stock markets opened to the downside last night mirroring moves in Australia and Asia and the euro traded down to below the US$1.30 mark as Wall Street was opening its doors. Base metals were weak in London as the opening bell rang and the day's US economic data were released.

Weekly new jobless claims fell to 348,000 last week marking the lowest level since March 2008. The four-week average is also near a four-year low. The Philly Fed manufacturing index rose to 10.2 from 7.3 in January for its best result in four months. January housing starts rose a welcome 1.5% reflecting increased demand for rental accommodation in apartment blocks. It was also noted the trend in foreclosures and delinquencies is now to the downside.

The housing data was the most talked about last night, given just how important housing is to the US economy. The monthly start numbers are very volatile, nevertheless, and we are still coming off a very low base, while inventories of foreclosed properties remaining unsold are still significant. But last night's data was another little piece in the currently more positive puzzle.

If only there weren't that elephant in the back corner of every room. It was mid-morning on Wall Street when news came through that European central banks were now prepared to swap new Greek bonds for old (meaning take a haircut) alongside the private sector holders. Previously the ECB had also indicated it would make a similar deal. The focus on the Greek budget cuts this last couple of weeks has drawn attention away from that other required element of any Greek bail-out – bond restructuring. The private holders – mostly European banks – had agreed to terms but would not go ahead until the public sector agreed also to participate.

That news provided some fresh hope that Greece would not default on or before March, and further to the cause the suggestion was made that the troika could at least give Greece a bridging loan, rather than committing to the full 2012 package just yet, ahead of its big debt rollover next month. Greece would then hold on through to the April election, after which the troika could start negotiations again with whatever new government arises.

This was all taken as good news, and as the euro turned and rallied so too did Wall Street push higher in its now typical tracking fashion. The sceptic might suggest Europe is simply keeping a terminal patient alive yet again until one day the machines are switched off.

The US dollar index was ultimately down 0.4% on the euro's rally and there's little relief in sight for the Aussie, back up 0.6% to US$1.0755. Gold was virtually unchanged at US$1727.70/oz.

Base metals in London closed before markets elsewhere gained upside momentum so last night's falls of up to 2% across the spectrum should be reversed tonight all things being equal. Oil is a different matter however, with Iranian tensions providing risks of their own and more data showing the decline of North Sea oil production impacting on Brent specifically. Brent crude rose US$1.26 to US$120.19/bbl for the new April delivery front month while West Texas for March added US53c to US$102.33/bbl.

I suspect that as Americans focus on improving economic data and the possibility of another Greek bail-out they are not paying a lot of attention to the creeping cost of energy.

After the big fall on the local bourse yesterday the SPI Overnight is up 40 points or 1.0%.

There are a lot of local earnings results out today with Billabong ((BBG)) set to be closely watched along with Santos ((STO)), while ANZ Bank ((ANZ)) will provide its quarterly update. 

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