The Overnight Report: April Showers

This story features MIRVAC GROUP. For more info SHARE ANALYSIS: MGR

By Greg Peel

The Dow fell 14 points or 0.1% while the S&P lost 0.4% to 1397 and the Nasdaq dropped 0.7%.

April has ended with a whimper on Wall Street, with a day of very light volume bringing a largely flat month to a close. The Dow is up a tick for the month and the S&P is down a tad, while the Apple-driven Nasdaq is off just a bit more. Right now it appears that S&P 1400 is the line in the sand. With elections to be decided in France and Greece shortly, Wall Street is not looking to rush ahead.

The flat April follows a very strong start to the year – one in which the mild North American winter has meant apparent “front loading” in solid US economic data. March data have been showing indications of a pullback to a more modest level of growth, and overall the March quarter GDP result of 2.2% growth is not enough to encourage sufficient jobs growth, yet not low enough to bring in the Fed once more. We are in limbo land.

Meanwhile US earnings for the March quarter continue to beat expectations. Concern is nevertheless mounting on the economic data front. Last night March personal income and spending data showed a 0.4% increase in incomes and a 0.3% rise in consumer spending. Consumer spending grew 2.9% over the quarter for the best result in over a year, but January and February were the stand-out months with March showing a pullback in growth. The US savings rate hit its lowest level post-GFC in February at 3.7% but it bounced back to 3.8% in March.

Last night's Chicago PMI release, which measures business activity in the Chicago area, showed a plunge to 56.2 for April from 62.2 in March. While 62 is a pretty “hot” growth rate number, and Australia would be thrilled with a manufacturing PMI of 56, the fall is quite marked and had Wall Street feeling a little less secure last night.

Today sees the global round of manufacturing PMI numbers, starting in Australia and finishing tonight in the US.

For the other financial markets, April has also been a fairly flat month of numbers moving around a lot but not really going anywhere. The US dollar index was up slightly last night to 78.78 and the Aussie was off a bit to US$1.0430 ahead of today's RBA rate decision. Gold continues to meander around the US$1660/oz level and the oils are similarly stuck around US$119/bbl and US$104/bbl respectively. April has, however, seen a bottoming out of the US natgas price at under US$2 before a rebound in the June delivery month to US$2.30/mmbtu.

Base metals were mixed and similarly going nowhere last night and the US ten-year bond yield currently sits near 1.90% after reacting to Spanish and Italian fears during April. The VIX sits comfortably at 17.

Spain continues to draw attention as we move into May. After a downgrade to Spain's sovereign debt rating on Friday, last night S&P downgraded the ratings of several Spanish banks. At the same time Spain's March quarter GDP was released to show 0.3% contraction – the second consecutive quarter of contraction and thus “officially” a recession. The world will be waiting to hear what the ECB's response to developments might be when it meets for a monetary policy meeting on Thursday.

The SPI Overnight was down 3 points.

All eyes will be on the RBA today, more so the statement than the actual move. A 25bps cut is considered in the bag and some commentators are suggesting 50bps, which is just not worth considering in a non-emergency situation. Another cut in June is, however, a possibility and economists will be looking closely for clues in the RBA's rhetoric.

We'll also have all those PMIs today including China's official number, while locally Mirvac ((MGR)) will deliver a trading update.

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