Daily Market Reports | Oct 17 2012
By Greg Peel
The Dow rose 127 points, or 1.0%, while the S&P gained 1.0% to 1454 and the Nasdaq added 1.2%.
It was one of those sessions in which all of the good news was known before the opening bell, ensuring a strong open before indices plateaued at those levels through to the close. First up came earnings.
Dow components Coca-Cola and Johnson & Johnson both posted earnings beats, while Goldman Sachs both beat expectations and raised its dividend to US50cps from US46cps. Once again we are finding upside surprises following supposedly overly pessimistic lead-in earnings downgrades.
Wall Street reeled with the news last night that Citigroup's CEO and COO have both suddenly resigned, but few were sorry to see their departure. Given Citi posted its strongest quarter for some time on Monday night, debate rages as to the real reason for the resignations. Citi shares were up on Monday and up again last night.
Following on from the strong retail sales number released on Monday night, last night saw US industrial production rise a better than expected 0.4% in September following a 1.4% drop in August. Housing sentiment ticked up one point to 41. It's a positive move, but still a slow grind up towards the 50-neutral mark.
US inflation jumped by a second consecutive 0.6% in September on headline CPI that might startle some under a QE3 regime, however the last two months have featured higher gasoline prices due to the flow-through from temporary hurricane-related refinery shut-downs. There are also expectations food prices will rise as the effects of the drought begin to pass through, however neither energy nor food is included in the Fed's core inflation reading, which rose by only 0.1%.
Over in Europe, the Germans are beginning to get in on the act with the ZEW investor sentiment gauge rising more than expected to minus 11.5 from minus 18.2 last month. However it was news regarding Spain – where else – that had Wall Street talking last night.
Nothing is ever straightforward when it comes to the European politics surrounding the region's mindless debt burden, especially when the tedious cretins who run the shop are involved. Madrid is supposedly still waiting to see the details of the bail-out conditions it will suffer before going cap in hand, which is a crock. One suspects the document has been on Rajoy's table for months now. Last night a Spanish official suggested Spain may ask for a line of credit from the ESM in the interim (on top of the line of credit already in place to prop up Spain's insolvent banks), which is just another confirmation Spain will be asking for a bail-out when either someone puts a gun to Rajoy's head or Merkel gives the all-clear after sorting out Greece and Cyprus simultaneously.
As per usual, the news was quickly watered down by a German official who suggested an interim line of credit was just “one option”. I have an option – shoot the lot of them. And ours too, while you’re at it.
Back in the real world, the response to the news from Fantasy Land was a 1.1% rise in UK stocks, 1.6% for Germany, 2.4% for France and 3.4% for Spain. The Spanish bond yield is around 5.75% and going nowhere. The euro has pushed up to over US$1.30 to threaten levels last seen earlier in the year before Spain became the latest headline.
The US dollar index is thus down 0.4% to 79.37, allowing some respite for gold. It's up US$10.60 to US$1748.00/oz and the Aussie is again a tick higher at US$1.0277.
We are ignoring base metals during LME week – they didn't do much last night – while Brent fell US73c to US$115.07/bbl and West Texas rose US21c to US$92.06/bbl. Spot iron ore fell US40c to US$112.60/t.
The move of note last night was that of the US ten-year bond yield. It's been drifting ever so quietly lower after the initial QE3 response, as more pathetic dithering across the pond has served to increase anxiety. However, the line of credit news has lifted the cloud somewhat and last night the tens jumped six basis points to 1.72%.
The SPI Overnight was up 27 points, or 0.6%.
The gloss slightly came off US earnings season after the closing bell on Wall Street following reports from the two big Dow techs Intel and IBM. Intel posted a beat, but its shares are down 2% in the aftermarket, while IBM disappointed and its shares are down 4%.
EU leaders will gather in Brussels for a two-day summit from tomorrow night (a good opportunity, where's my rocket launcher?), but ahead of that the local bourse will be focused on the September quarter production and sales report out today from BHP Billiton ((BHP)).
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