The Overnight Report: Steadying The Disinterested Ship

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By Greg Peel

The Dow closed down 5 points while the S&P lost 0.1% to 1689 and the Nasdaq gained 0.3%.

Japan posted June quarter GDP growth of 2.6%, as announced yesterday, well below consensus 3.6% expectation. It was also a big drop from December’s 4.1%, although that figure was revised down to 3.8%.

Prime Minister Abe had indicated that his plan to raise sales tax would hinge on June quarter GDP performance. On the strength, or lack thereof, of the result it is assumed Abe will hold off. While this is positive from a shorter term stimulus point of view, the tax hike was intended as a measure to help reduce Japan’s excessive public debt. The yen has fallen sharply and the Nikkei has rallied strongly since it became clear last year Abe would win government. In recent months both have faltered amidst significant volatility. No one, it seems, is quite sure what’s going to happen next.

Japan’s weak GDP did not bother Bridge Street yesterday, with trade reflecting a somewhat delayed reaction to Thursday and Friday’s positive Chinese data. Well, let’s just say less negative. A sharp jump in commodity prices in response was the underlying driver, although summer-thin northern markets make it easy for sharp moves at present. Bridge Street seemed undeterred that strong commodity prices have also meant a rebound in the Aussie dollar.

The Aussie was down half a cent to US$91.48 overnight nevertheless, given a 0.3% gain in the US dollar index to 81.40 which itself was a result of a weaker yen.

Wall Street took the Japanese GDP news badly at the open, with the Dow down over 60 points from the bell, but Monday is typically M&A day in the US and a raft of takeover announcements amongst various lesser known companies helped to arrest the slide. Thereafter, amidst anaemic holiday volumes, Wall Street ground back to a flattish close. After a soft week last week, last night’s recovery is more akin to what we’ve been seeing up to the August vacation season.

Base metals quietened down in London last night and did not react adversely to the Japanese GDP, with slight moves upward. West Texas crude reacted similarly, rising US17c to US$106.14/bbl, although Brent did initially respond negatively to Japan. Weakness did not last long, given news Libyan export terminal workers had walked off the job again just hours after two of Libya’s biggest terminals had come back on line following an initial strike. Libyan oil compliments Brent supply, so Brent closed up US75c to US$108.97/bbl.

For the past three sessions there has been some issue with the publication of the spot iron ore price. It has appeared as flat, but this has not necessarily been the case behind the scenes. Suffice to say the price is showing as up US$5.60 to US$138.70/oz today, but the move likely represents a net amount over that period.

The SPI Overnight rose 9 points or 0.2%.

Wall Street continues to wallow without commitment as Americans enjoy the sun. Tonight sees the monthly retail sales release, which may add a spark. There are still a couple of names to report results, but an “okay” earnings season is now all but wound down.

The opposite is true in Australia, where the season is beginning to hot up. Just a note at this point for those (including myself) trying to ascertain on exactly what date companies are reporting:

While it is mandatory for public companies to publicly release their profit results, it is not mandatory for them to set a date. Most do set a date ahead of time, while others are less clear until the season is upon us. And there is no law against changing dates at the last minute. It simply means that result calendars, such as FNArena’s, become moveable feasts. Access three different broker calendars and you’ll find a company reporting on three different dates. FNArena’s calendar is thus created on a best endeavours basis, and the bias is to pick the first date suggested. Better to be early and wrong than to be late and miss it. So apologies if FNArena’s calendar suggests a company is reporting on a given day but doesn’t, and reports the next day or some other time. Hopefully we won’t actually miss any in the end, but it is a frustrating business.

So with that in mind, today’s reporters should include Bradken ((BKN)), REA Group ((REA)), STW Communications ((SGN)) and Stockland ((SGP)), among many others, but don’t come looking for me if I’m wrong.

We’ll also see the monthly NAB business confidence survey out today.

NOTE FROM THE EDITOR

Economic data have started to surprise on the upside, including recent PMI surveys and Chinese indicators. This has prompted suggestions from the more optimistic forecasters that global growth is looking in much better shape for the second half of the calendar year. If correct then the recent switch into resources stocks will have further to run.
 

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