The Overnight Report: Awaiting The Fed

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By Greg Peel

The Dow closed down 1 point while the S&P gained two points to 1762 and the Nasdaq lost one point.

Looks like Australia’s the place to be all of a sudden. The ASX 200 has been creeping up steadily in recent weeks, following Wall Street’s lead, and yesterday broke up through technical resistance above 5400. The break-out will still need definitive confirmation, but on a technical basis there’s little left in the form of resistance levels between here and the 2007 all-time high.

It won’t be a stroll, given that all-time high is 6828 on a closing basis, 25% away. But the break-out has certainly fired up the market. The big caps led the 1% rally yesterday, across all sectors. The banks themselves are now at all-time highs in some cases, while big names in cyclicals and defensives were all in the mix. It was a case of buy the index, which clearly the institutional investors were doing.

Wall Street has seen all-time highs broken all year, of course, including on Friday. With the Fed due to release a monetary policy statement tonight, last night seemed like a good opportunity to hang on the sidelines. With all the talk of a tapering delay until at least March, in the wake of the US government shutdown, we are reminded that throughout the fiasco we have heard not one peep from the central bank.

Complicating the issue is the fact this is Ben Bernanke’s penultimate meeting as chairman. The Fed meets six-weekly, so the next meeting is in December. While it was previously assumed Bernanke would like to initiate a process of ending what he began before he left the building, the shutdown has put the kybosh on the Hollywood ending. Bernanke is expected to now step back in lame duck fashion and not force his view, even though that view is likely now one of keeping QE going.

Indeed, alongside speculation of just how long the Fed will now wait to start tapering, there is a growing view QE may even be increased. It will all depend on the data, as the Fed has indicated. However the data itself has become problematic. Data that was due for release during the shutdown is only now emerging but given it is pre-shutdown data, it lacks relevance. Data due for release since the shutdown has also been delayed given no one was around to count numbers for two weeks. It’s all a shemozzle.

Last night’s data releases were mixed. Industrial production rose 0.6% in September against 0.4% expectation. While the result looks good on face value, the big jump was in utilities output which is closely related to the weather, and hence not a great underlying indicator. Pending home sales marked their fourth straight month of declines in September, falling 5.6% to their lowest level in nine months. A combination of stronger house prices and higher mortgage rates has stalled the sharp US housing recovery, which is exactly the sort of information the Fed has used to delay tapering (even though it was tapering talk which pushed up mortgage rates in the first place).

The US dollar index was up 0.1% to 79.35 and the Aussie is down 0.1% to US$0.9568. Gold is a tad higher at US$1353.19/oz. Base metals were all little moved.

The story was different for the oils. Protesters shutdown Libya’s oil fields and ports over the weekend, again, and reports suggest Libyan oil production has dropped to less than 10% of capacity as the government attempts to end the three-month dispute. The disruption is the worst Libya has seen since its civil war. As a result, Brent crude shot up US$2.20 to US$109.43/bbl last night. West Texas rose US78c to US$98.63/bbl.

Spot iron ore fell US$1.50 to US$131.80/t.

The SPI Overnight closed up 4 points.

After the bell in New York, Apple released its quarterly result. After a solid run recently, Apple shares are down 2% in the after-market.

More delayed data will be released in the US tonight, including retail sales and the PPI, alongside scheduled data including house prices and consumer confidence.

RBA governor Glenn Stevens will speak at a gathering this morning, while all eyes will be on ANZ Bank’s ((ANZ)) full-year result. We should also see some quarterly numbers from AlacerGold ((AQG)), Beach Energy ((BPT)) and Perseus Mining ((PRU)) while Stockland ((SGP)) and UGL ((UGL)) are among the many holding AGMs today.
 

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