The Overnight Report: Revenue Growth Elusive

This story features ORIGIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: ORG

By Greg Peel

The Dow closed up 13 points, or 0.1%, while the S&P gained 0.3% to 1690 and the Nasdaq jumped 0.7%, spurred on by a 30% surge in Facebook shares.

Facebook was certainly the talk of the town last night, after blowing away the naysayers with evidence the company actually can make money out of its mobile platform. Elsewhere profit results were again mixed, leaving Wall Street to ponder a common theme of quarterly profit results ever since 2009. At around the half-way mark, net S&P 500 earnings are up a better than forecast 4.6% for the quarter, but revenues are down 0.5%.

The failure to show improvement on the top line is one factor holding the broad index back from punching through the never before seen 1700 level, but at the same time the downside appears equally elusive as the buyers move in on any sign of a dip. As was the case on Wednesday, the Dow average was down over 80 points during the session last night before recovering towards the close.

US bond yields are another factor working against a fresh leg-up in stocks, with the ten-year yield rising another 2 basis points to 2.61% last night. A steepening yield curve might indicate faith in the US economy (and thus expectation of Fed tapering), but aside from the banks the higher rates will act as a headwind against attempts to lift corporate revenues ahead. As will the higher oil price.

An announced 4.2% increase in June durable goods orders, in the wake of Wednesday night’s strong PMI but surprisingly poor Richmond Fed index, maintained a theme of mixed economic data releases. The bulk of the durable goods gain was due to lumpy aircraft orders, while non-transport growth provided a disappointingly flat result.

Talk now is of a necessary pullback in the stock indices, but too much talk usually implies it’s just not going to happen. Not unless something out of the blue pops up. Outside of earnings, the yield curve and a major insider trading case now unfolding on Wall Street, attention last night turned to – of all places – New Zealand. At its policy meeting yesterday the RBNZ elected to maintain a 2.5% cash rate, but traders concluded from the accompanying statement that the next move in rates would be up, perhaps as soon as early 2014.

The Kiwi jumped 1% as a result against the greenback, helping to drag up the Aussie in its wake. Again the Aussie moved by 1%, this time up, but at US$0.9258 remains stuck in a definitive range. Neither the Aussie nor Kiwi are included in the trade-weighted basket that determines the US dollar index, but it was down 0.6% last night to 81.76. Gold thus rose US$12.10 to US$1322.40/oz.

The weaker greenback was not enough to excite metals traders, who at present are contemplating mixed global data in a summer-thin market. Last night’s first estimate of the UK’s June quarter GDP came in right on the money at 0.6% growth, so no signals there. Aluminium and nickel were both off 1% while the other metals were little moved.

The energy market is nevertheless keen on stronger transport orders, so Brent crude rose US44c to US$107.63/bbl and West Texas rose US30c to US$105.69/bbl.

Spot iron ore was steady at US$132.10/t.

The SPI Overnight was down 1 point.

If the S&P 500 is having trouble reaching 1700, the ASX 200 is really not quite sure what to do above 5000. A flat session yesterday reminds us that next week the last of the resource sector production reports will blend into a trickle of early six-month earnings reports, with numbers from Origin Energy ((ORG)), Paladin Energy ((PDN)), Navitas ((NVT)) and Transurban ((TCL)) among the highlights. As the US earnings season fades, the Australian earnings season will ramp up.

July will end next week, which means a round of global manufacturing PMIs on Thursday, followed by the world’s most critical data release on Friday – US non-farm payrolls.

 

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