The Overnight Report: As You Were

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By Greg Peel

The Dow rose 95 points or 0.6% while the S&P gained 0.3% to 1752 and the Nasdaq added 0.5%.

So much for the potential of any pullback on Bridge Street yesterday. The ASX 200 traded higher from the opening bell. The weaker close on Wall Street on Wednesday night only mimicked Bridge Street weakness in the local session. By the time Asian zone markets were opening concerns around Chinese banks and short term credit were abating.

Commentators dismissed the big loan write-downs from Chinese banks as drop in the bucket stuff, given the minimal impact on very strong balance sheets. The sharp spike in the Chinese seven-day money market rate was also dismissed as just a blip which Beijing could happily correct if needs be. Then along came HSBC’s flash PMI.

HSBC’s flash estimate of China’s October manufacturing PMI was released late morning Sydney time and showed an increase to a seven-month high of 50.9 from September’s final 50.2 reading. Not exactly gangbusters expansion, but expansion nevertheless. Interestingly, however, HSBC’s flash September estimate showed 51.2 before the final reading came out at 50.2.

But Bridge Street liked it, and rallied a little further. Yet yesterday’s leading sectors were utilities and healthcare, with the banks not far behind. More defensive than offensive.

Last night Wall Street also shrugged off the Chinese concerns of the night before, and went back to focusing on earnings reports and QE infinity. Ford (Dow) was among those posting earnings beats last night while the big blue caps in general led the charge, with gains in Dow components Exxon, Wal-Mart and General Electric, along with number two cap Apple, driving the indices higher. Big multinationals are benefitting from a US dollar which is weaker when it was expected to be stronger by now — all a result of no tapering.

Revenues have improved somewhat, but not by as much as anyone would like and certainly not in line with earnings. This has been the consistent pattern for the past five years. Aside from deleveraging, US companies continue to cut costs and increase productivity, neither of which suggests any reason to hire new employees. Indeed, perhaps the opposite. Until a bottom is found in streamlining, in line with an improving economy, the US unemployment rate will struggle to fall to the target sought by the Fed.

Last night’s weekly new jobless claims number showed a fall of 12,000 to 350,000, but economists warned of distortion from the two-week shutdown. The shutdown was similarly the excuse to dismiss a fall in the Markit flash estimate of the US October manufacturing PMI to 51.5 from 52.8 in September.

Across the pond, the equivalent eurozone flash showed an increase to 51.3 from 51.1, but a fall in the service sector flash to 50.9 from 52.2 was unexpected, and took the composite eurozone reading down to 51.5 from 52.2.

The Aussie seems suddenly to have lost its gloss. The China proxy currency made a half-hearted effort yesterday to rally back on the PMI release but soon lost interest. Perhaps yesterday’s very sharp fall post the China bank loan/liquidity news scared out some of the Johnny-come-lately longs to establish a more realistic level. The Aussie is down 0.1% over 24 hours to US$0.9615, despite the US dollar index also being down 0.1%, to 79.18.

Gold pushed higher again last night, rising US$12.10 to US$1346.70/oz while in London, base metals all recovered some of Wednesday night’s losses. Aluminium, nickel and tin were all up around 1%. West Texas crude also recovered, by US23c to US$97.09/bbl, while Brent fell US59c to US$106.93/bbl on the easing of supply concerns.

Spot iron ore rose US30c to US$133.50/t.

The SPI Overnight closed up 8 points.

The UK will deliver a first estimate of September quarter GDP tonight and if recent data are anything to go by, it should be a cracker. Germany’s IFO survey is due, while in today’s session Japan will release its September CPI.

Locally there’ll be plenty more AGMs today including Transfield ((TSE)), while Asciano ((AIO)) and AMP ((AMP)) provide quarterly updates. ResMed ((RMD)) has just released its quarterly profit report in the US and while an EPS of (US$) 56c is an improvement on 49c a year ago, Wall Street had 58c.

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