The Overnight Report: In Memoriam

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By Greg Peel

The Australian market opened yesterday the same way it had closed last week – weak. The foreign exit continued in the morning and provided for another 1% fall before the market finally rediscovered some buying interest, ensuring a less dramatic 0.5% fall by the close. The Aussie continued to fall in tandem, perpetuating the feedback loop, and is down another 1% from Friday night to US$0.9633.

The ASX 200 has now fallen 5% from its peak in early May, which came around the time the likes of Woodside Petroleum ((WPL)) and the banks were announcing their expanded capital return measures. Last Wednesday Westpac ((WBC)) was offering an FY13 forward yield of 5.9% before franking and that has risen to 6.4% on yesterday’s close. As to whether there is more foreign selling to come is unclear, but yields on stocks such as the banks should provide the dampener.

Beijing yesterday announced a 9.3% year on year rise in Chinese corporate profits in April, up from 5.3% in March. While corporate profits are tracking in line with industrial production growth, April 2012 provided a rare 2.2% fall in profits which makes the one year gain less impressive than it otherwise looks. Chinese exporters are now becoming members of the Strong Currency Club, with Beijing allowing the renminbi to hit a 19-year high against the US dollar yesterday. The strength of the renminbi is yet to be felt in Chinese data, economists suggest.

The strength of the renminbi is nevertheless good news for US exports to China, given burgeoning US dollar strength, driven by Fed exit talk. In between are Australian exporters who will be delighted to see the Aussie weak and renminbi strong. Not so for the importers of cheap Chinese goods.

Wall Street was closed last night as the US enjoyed the Memorial Day long weekend. It was also a long weekend in the UK, so no LME metals markets. Some commodities continue to trade electronically nevertheless, for those not on holiday, so Brent crude was down a smidge to US$102.39/bbl and West Texas was down US38c to US$94.15/bbl. Gold rose US$3.00 to US$1394.40/oz on a slightly weaker US dollar index, at 83.64.

Spot iron ore took a tumble in China, falling US$2.30 to US$120.90/t.

The SPI Overnight fell 13 points or 0.3%.
 

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