Daily Market Reports | Jan 24 2013
By Greg Peel
The Dow rose 66 points, or 0.5%, while the S&P gained 0.2% to 1494 and the Nasdaq added 0.3%.
We all know the old adage: “Why do today what you can put off till tomorrow?” It was with this in mind that last night the Republican majority House voted to extend the US debt ceiling decision for three months, allowing time for negotiations on spending cuts. From a stock market trader/investor point of view, it's a case of “out of sight, out of mind”.
The debt ceiling is of course linked to our old mate the fiscal cliff, and it was a postponement of the full impact of Cliff as the clock struck 2013 which has provided the way forward for US stocks to reassert their rally. It was the Cliff postponement to 2013 in 2011 that allowed for the big rally of 2012 – that, and QE3. That must surely by now be almost crushed beyond recognition. But either way, all talk now on the Street, as the net positive quarterly earnings results roll in, is of just how close the all-time highs of October 2007 really are.
In Dow terms, we're talking 386 points from last night's close to 14,165. In S&P 500 terms, it's 71 to 1565 (5%). Traders have nevertheless noted that 1500 mark will provide the usual psychological resistance, and a stiff technical resistance point exists at 1516. But with net quarterly earnings results proving solid to date (measured against much marked down forecasts), a continuation of that trend might be enough to achieve the unbelievable – a complete wipe out of the GFC event in US stock market terms. Is this justified?
Don't fight the Fed.
Aside from QE and earnings recovery, the following chart demonstrates another underlying factor of the Wall Street rally:
This is a chart of the FHFA house price index, or the mean price of houses under Fannie Mae or Freddie Mac government-sponsored mortgages – a huge sample set of Joe Average dwellings. Last night it was revealed this index rose 0.6% in November, and has not fallen in any month since January 2011. Prices are now back to the level of August 2004, beyond which madness lay. As I noted yesterday nevertheless, US mortgage lending is about as tight now as it was loose leading up to 2007. Somewhere in between lies an equilibrium of prices and lending standards.
In earnings terms, it was a big day for the tech sector last night. After reporting after the bell on Tuesday, Google shares rose 5.5%, IBM (Dow) 4.4% and Intel rival AMD rose 12%. As I write, Wall Street is holding its breath for today's big after-market report – that of Apple.
Meanwhile, in perhaps a portent of things to come, prime minister David Cameron vowed last night to hold a referendum on the UK withdrawing from the EU. Given the vow was for a referendum within two and a half years of the next election, in 2015, it's hardly of immediate concern, and was well flagged anyway. But food for thought.
Another interesting development last night was the Bank of Canada's decision not to change its cash rate. Canada, as we know, has much in common with Australia. In Australia at the moment, there are those arguing that the RBA simply has to cut rates further and others pointing out that a reinvigorated China, and global economy in general, may well scare Stevens into not cutting rates any further at all. Note that the BoC decided, given a still sluggish Canadian economy, not to raise the rate as expected.
Speaking of Canada and commodity producer comparisons, the country is a major contributor to the current US oil glut. Canadian oil is piped both to the populous US east coast and to Cushing, Oklahoma, where it is re-branded West Texas Intermediate. With local shale oil also pouring in, there is so much oil at Cushing the storage tanks are near bursting. The pipeline to the Gulf – which used to flow inland rather than the other way, is now reversed as far as Texas, and hence there is a crude oil log-jam in Texas. To that end, traders last night sold down West Texas crude by US$1.12 to US$95.56/bbl.
The problem is, not only is WTI land-bound and thus unable to be exported, there's more oil demand within the US than there is supply anyway. Which is why last night Brent crude – reserves of which are on the wane – rose US55c to US$113.03/bbl. And that's the stuff that is exported, including to Australia (via Singapore). The Brent-WTI spread has been a lot higher than the current seventeen-odd dollars, but it's on the way back out.
The US dollar index was unchanged last night at 79.80 and the Aussie, after a bit of CPI-driven rock and roll yesterday, is little changed at US$1.0553. Gold has lost US$6.80 to US$1686.90/oz.
Base metals were mixed last night on insignificant moves, but spot iron ore had a good session, rising US$1.80 to US$147.70/t.
The SPI Overnight is up 9 points.
It's a day for flashers today, with HSBC's China manufacturing PMI estimate out in the local session and the eurozone and US following suit tonight. There are a handful of quarterly production reports to look out for today, including Fortescue ((FMG)) and Newcrest ((NCM)).
Oh look, Apple's out. Earnings beat, revenue miss, down 5% in the after-market (at the time of writing).
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