The Overnight Report: Back In Black

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By Greg Peel

The Dow closed up 27 points or 0.2% while the S&P gained 0.4% to 1697 and the Nasdaq added 0.4%.

After Tuesday’s computer stampede on Bridge Street, it was always a reasonable bet the index would turn around and recover ground yesterday, particularly haven fallen close to the 5000 support level for the ASX 200. China’s trade balance data at lunchtime also offered some relief, although we did close off the highs of the day.

According to Beijing, China’s exports rebounded to a 5.1% (year on year) gain in July from a 3.1% fall in June, exceeding expectations of 2.8%. Imports jumped 10.9% after a 0.7% drop in June and against 1.3% expectations. If these numbers are in any way accurate it’s a great result and a great relief for the world, and Australia in particular. The trade surplus somehow managed fall to fall short however, down to US$17.8bn from US$27.1bn when economists had forecast US$27.2bn.

LME traders have been waiting for the Chinese data all week. Today we see Chinese inflation, industrial production, retail sales and fixed asset investment data, but base metals were off to the races last night regardless, with across the board gains of around 2%.

It was a wild ride for the US dollar last night given the yen shot up in the morning to drive the greenback lower, before easing off in the afternoon. The net result was a 0.3% fall in the dollar index to 81.03, but most notably Wall Street tracked the dollar-yen closely last night. The Dow was up 87 points from the bell and down 52 within an hour before recovering and fading again at the close. The moves tracked the yen, which suggests (a) Japan is once again important in today’s global economy and (b) activity is so summer-thin traders need something to latch on to.

The combination of a lower US dollar and strong commodity prices had the Aussie surging over the past 24 hours, rising over a cent to US$0.9102. The foray into the 80s seems over for now, at least until timing on Fed tapering becomes more clear.

Given strong Chinese data drove big moves up for the metals, one might have expected a similar response in oil. But it was not to be.

For many weeks crude oil prices have been carrying an “Egypt premium”. Problems in Egypt are far from over for things appeared to have settled down for now, allowing an easing in oil-related fears. More importantly though, new Iranian president Hassan Rouhani is proving a very different kettle of fish to his clinically insane and dangerously bellicose predecessor I’m A Dinner Jacket. Rouhani is extending an olive branch of conciliation to the West, offering to frankly discuss Tehran’s nuclear program in an attempt to have crippling economic sanctions lifted. If crude oil prices have been carrying an Egypt premium for weeks, they’ve been carrying an Iran premium for many months at the very least.

Oil prices have thus been easing this week, and eased again last night despite the Chinese data, the lower greenback and a sharp fall in US weekly inventories. On the other side of the equation, summer maintenance is now complete and North Sea (Brent) production has ramped up again. Last night Brent fell US76c to US$106.68/bbl and West Texas fell US64c to US$103.73/bbl. Weakening oil prices may not be good for energy sector share prices (although Exxon posted a big earnings miss this quarter despite strong crude prices), but they are good for the global economy in general. A recent Dunn & Bradstreet survey found 23% of Australian businesses see high energy prices as their greatest concern going into the second half of 2013.

Spot iron ore was steady at US$133.10/t.

The SPI Overnight closed up 19 points or 0.4%.

Today, as noted, Beijing will provide a monthly data dump. The RBA will issue its September quarter Statement on Monetary Policy and Tabcorp’s ((TAH)) result will be today’s reporting highlight.
 

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