The Overnight Report: And Back To The High

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By Greg Peel

The Dow closed up 111 points or 0.7% to 17,055 while the S&P gained 0.5% to 1977 and the Nasdaq added 0.6%.

It was another healthy day on the local bourse yesterday and the ASX200 once again closed above 5500. With Wall Street again threatening all-time highs the number to look for locally is the previous post-GFC high of 5554 – 43 points away. As to whether investors will risk a push into new territory ahead of next month’s earnings season is a case in point, and it’s interesting to note yesterday’s push was not driven by cyclicals but by our old favourites the banks, healthcare and telcos.

In other words, six stocks – the four majors, CSL ((CSL)) and Telstra ((TLS)). All defensive.

The quarterly US earnings season is now in full swing and last night’s highlight was the Citigroup result. While the bank posted a beat on earnings, Citi’s 3% rally was as much to do with an announced US$7bn fine relating to dodgy subprime mortgage deals from way back when. Not only does the announcement remove lingering uncertainty, the regulator was going for US$12bn.

Wall Street didn’t actually “rally” last night, it just opened higher and stayed there. Although a drift to the close meant the Dow, which had traded as high as 17,088 and in so doing cleared the previous 17,068 high, once again suffered vertigo. One interesting point to note is that last night’s push on Wall Street was blue chip-led this time, rather than momentum stock or small cap led. The 0.7% increase for the Dow outstripped the 0.6% gain for the Nasdaq and 0.5% gain for the Russell 2000.

The Dow is not an equivalent index of course, being a simple average, but it is compiled of blue chips and recent all-time high conquests have usually been led out by the Nasdaq/Russell combo. So in a sense, what we saw in Australia yesterday was mirrored to some extent in New York last night.

It’s become a fairly good bet for gold traders in recent times that if the gold price has a run-up, for whatever reason, but fails to follow through, eventually patience will run out. Gold made a big charge back through the 1300 mark in mid-June when US inflation talk began to intensify, aided by the ISIL insurgency and lingering problems in Ukraine. It has pretty much stalled ever since, and last night patience ran out. Gold is down US$31.70 or 2.4% to US$1307.20/oz, marking its biggest one-day fall in 2014.

The 0.9% fall in Australian gold bellwether Newcrest ((NCM)) yesterday provides the clue that gold physical selling began in Asia yesterday afternoon and was exacerbated in London’s session, such that all the damage was done before New York even opened for business. This was nothing to do with US inflation nor, if we consider that Israel and Palestine are at war again, the result of a geopolitical trigger. In the case of the latter, markets have decided now that (a) Putin is not stupid enough to step up the confrontation with the West, (b) southern Iraqi oil production appears safe, and (c) Israeli-Palestinian confrontations occur with tedious regularity, and with little global impact.

But we could also call last night’s gold rout somewhat of a delayed reaction. Last Thursday the new Indian government brought down its first budget, and shocked gold traders by not including a cut to the 10% gold import duty applied by the previous government in order to stem rupee depreciation. Expectations were for at least a drop to 8%, if not 6%, thus encouraging greater gold demand from traditional Indian buyers. Add all of the above together, nevertheless, and we can probably explain last night’s trickle-that-became-a-flood.

There was no move in the greenback of note to set gold off, indeed the US dollar index is down a tick to 80.17. The Aussie is steady at US$0.9391.

Base metal prices barely troubled the scorer last night but iron ore jumped a healthy US$1.00 to US$97.90/t, providing encouragement for those hoping a return to triple digits is on the cards. Australia’s iron ore juniors will also be praying for a reduction to lower grade discounts.

Having wiped a big chunk off their own geopolitical premiums on Friday night, the oils stabilised last night. Brent rose US28c to US$106.83/bbl and West Texas rose US50c to US$101.19/bbl.

The SPI Overnight closed up 20 points or 0.4%.

The Bank of Japan will hold a policy meeting today to decide what to do about an economy still suffering from March’s sales tax increase. Inflation data are due in the UK tonight, providing more fuel to the interest rate speculation fire, while all eyes, or ears, will be on Janet Yellen as she provides a mandatory testimony to a House Committee. More interest rate speculation fodder. US retail sales numbers will also be very closely watched.

The minutes of the July RBA meeting are due out today but may well be a carbon copy of June’s. On the local stock front, OZ Minerals ((OZL)), PanAust ((PNA)), Silver Lake Resources ((SLR)) and Whitehaven Coal ((WHC)) will all release quarterly production reports.
 

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