The Overnight Report: Keep On Yellen

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By Greg Peel

The Dow closed up 65 points or 0.4% while the S&P gained 0.4% to 1879 and the Nasdaq rose 0.8%.

It was a quiet day on Bridge Street yesterday as expected, with the ASX 200 adjusting up 25 points for its missed Wall Street session and staying there. Things may hot up a little more today when the local CPI release meets HSBC’s flash estimate of China’s April manufacturing PMI.

Wall Street began the morning in rolling buy-mode and pushed the Dow up 116 points before 2pm. A gain of 127 would have put the average at a new all-time high once more, but the buying quietly faded into the afternoon. The S&P still needs another 1.4% gain to hit its previous high which is evidence of the switch into the more solid, if not stolid, blue chip names in the recent correction – many of which reside in the Dow – and out of a lot of the momentum high-flyers that have at least some influence on the S&P. The Nasdaq is nevertheless rapidly recovering.

Netflix was one such high-flyer, who saw its shares come off its own high by 20% before the correction found a bottom. Having reported after the bell on Monday night, Netflix shares gained 7% last night. A couple of those solid Dow blue chips did not report so well last night, with AT&T down 2% having posted after the bell and McDonalds falling 0.4% during the day-session.

McDonalds watchers fear there might be an insidious trend among American consumers towards healthier eating. Has someone told the NSA? Maccas has a fizzy drink deal with Coke, which is also experiencing a local sales downtrend (as is its affiliate in Australia).

On the economic front, the Richmond Fed manufacturing index rebounded solidly in April to plus 7 from minus 7 in March, beating expectations of plus 2. The March result had been a disappointment as it seemed to counter the snow argument, so weather-excuse supporters will now be happy.

March did, admittedly, start under snow before the thaw began, which is the excuse still being used by realtors. Existing home sales fell 0.2% in March to mark the slowest pace of sales since June 2012. Sales of existing homes nevertheless peaked and began trending down from the last US summer when rising mortgage costs met a lack of inventory and already inflated prices.

Prices of houses with Fannie/Freddie mortgages nonetheless rose 0.6% in February (seasonally adjusted, but it was a particularly bad season weather-wise) for a 6.9% year on year gain. But in another case of initial small sample surveys being no less than completely misleading before more widespread results are in, the FHFA revised down its earlier January suggestion of a 0.5% gain to a 0.4% fall.

So once again the economic data are not really painting a picture of an undeniably healthy US recovery and we’ll have to wait till we can shake off the snow man in the data before things are more clear. Nor are earnings results off to the races (except maybe Harley Davidson, which saw a 6% gain on its result last night), although there are plenty still to come. At the end of the day potential new all-time highs are all about the Fed, and little else.

Movements amongst the currencies were tepid last night, with the US dollar index falling 0.1% to 79.89 and the Aussie steady at US$0.9328. Despite Veep Joe Biden threatening further sanctions against Russia if it does not withdraw its troops from the Ukraine border, gold fell US$6.00 to US$1283.60/oz and the US ten-year yield is again steady at 2.72%.

Nor did the energy markets shake in their boots, with Brent down US43c to US$109.44/bbl. West Texas fell US$1.84 to US$101.81/bbl, but that was more to do with the expiry of the May delivery contract.

Nickel continued on its merry way when the LME reopened last night, rising 2.4%. With the exception of unpopular copper, the other metals all posted 1% gains to factor in an expected tick up in the Chinese PMI today. It may not be pretty if this doesn’t come to pass. Iron ore fell another US80c to US$112.50/t.

The SPI Overnight rose 22 points or 0.4%.

Another 22 points would, funnily enough, take us up to resistance at 5500 once more and the previous post-GFC high of 5503, marked just before the Nasdaq hiccup. Our own CPI and/or the Chinese manufacturing number, due today, may yet have something to say about it.

There’ll also be another raft of quarterly production reports from the miners today to consider, with Newcrest ((NCM)), Mincor ((MCR)), Panoramic ((PAN)) and Perseus ((PRU)) in the frame.

Tonight will also see flash PMI estimates for the eurozone and US.

Rudi will appear on Sky Business at 5.30pm.
 

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