The Overnight Report: Zip

This story features RESMED INC. For more info SHARE ANALYSIS: RMD

By Greg Peel

The Dow closed down 92 points or 0.7% while the S&P lost 0.7% to 1365 and the Nasdaq fell 0.4%.

Under the circumstances, 92 points down in the Dow is not too bad a result (the Dow was down 192 at its nadir), considering ECB president Mario Draghi's “whatever it takes” speech last week was worth around 400 points to the upside. At the end of the day, Europe has built such a reputation of all talk and no action over the past three years that a SocGen client poll ahead of last night's ECB meeting found 69% of respondents expecting to be disappointed.

At best, markets around the world were hoping “whatever it takes” would translate into ECB/ESM support for Spanish and Italian sovereign bonds, and/or at least another LTRO, and/or at the very least another cut in the ECB cash rate. What markets got was none of the above. There are no grounds to take action, Draghi suggested, as no eurozone member has approached the EFSF for support.

This may be true, albeit with the yield on the Spanish ten-year bond last night jumping 44bps to over 7% once more and the Italian equivalent 43bps to 6.3%, the comment seems somewhat disingenuous. At a joint press conference last night the Italian prime minister did indeed declare that Italy would not be seeking a bail-out, while the Spanish premier ducked the question. Spain has not yet asked for a sovereign bail-out but has to date lined up an E100bn facility to support Spanish banks. Both nevertheless signed a vague agreement to push towards greater fiscal and monetary union, in the fullness of time, yada yada yada.

To be fair to Draghi he did reiterate that the ECB “may” buy stressed sovereign bonds if needed and suggested the bail-out funds (EFSF, ESM) should be ready to intervene in bond markets as well. The problem is that the German Constitutional Court last month deferred a decision on a challenge to Germany's participation in the funds until September. Until there is a green light from Berlin, Brussels is hamstrung.

Which leaves us with two critical central banks potentially providing policy shifts in September. To add insult to injury, the Bank of England also made no policy changes last night, preferring to wait until a recent step-up in QE comes to an end in November.

Clearly the investment world will just have to suffer through another month or more of uncertainty – of waiting and watching and speculating as the global economy scrapes along.

Response in markets elsewhere last night was predictable. The euro fell and sent the US dollar index up 0.2% to 83.32. With nothing from the ECB following nothing from the Fed, gold fell another US$12.20 to US$1587.60/oz. Base metals took the biggest hit, falling 1-3%. West Texas crude fell US$1.55 to US$87.35/bbl but Brent was almost unchanged at US$105.90/bbl.

Nor was the Aussie impacted, remaining steady (on a 24-hour basis) at US$1.0464. Money flowed back into US bonds as one might expect, with the ten-year yield falling 6bps to 1.48%. On the other hand, stock option positions held as protection ahead of the Fed/ECB party were clearly unwound, as the VIX dropped 7% to 17.5.

The SPI Overnight fell 28 points or 0.7%.

We're now stuck in a central bank stalemate, so from Australia's point of view the next catalyst will begin next week as the results season steps up a gear. Today we'll hear from ResMed ((RMD)). It's also global service sector PMI day, so we'll see the Australian and Chinese results in today's session, while tonight the US jobs report will be the major focus.

Economists had initially expected around 95,000 jobs to have been added in the US in July but after Wednesday's stronger than expected ADP number that figure has shifted up to around 120,000. If recent history is any guide, I'll tip 50,000.

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