The Overnight Report: Normal Programming Resumed

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By Greg Peel

The Dow closed up 80 points or 0.5% while the S&P gained 0.5% to 1981 and the Nasdaq added 0.5%.

There is no argument to be made at present for the RBA to shift rates either up or down. The minutes of the August meeting confirm this [my emphasis]:

“Members noted that the current setting of monetary policy in Australia remained accommodative and supportive of demand. Credit growth had picked up a little and dwelling prices had continued to increase, albeit at a slower pace than was the case a year earlier. Interest rates were very low and had declined a little further since the last reduction in the cash rate. On the other hand, the exchange rate remained high by historical standards, particularly given the notable decline in the prices of some key commodities, and hence was offering less assistance than it might in achieving balanced growth in the economy.

“Staff forecasts suggested that inflation, despite recent higher readings, was likely to be consistent with the 2–3 per cent target over the next two years. Output growth would probably be somewhat softer in the near term after recent higher readings, but was expected gradually to strengthen again over the forecast period. Members noted that there was inevitably a significant degree of uncertainty about the outlook, given the number of forces working in different directions. The Board judged that monetary policy was appropriately configured and that, on present indications, the most prudent course was likely to be a period of stability in interest rates.”

The ASX200 surged out of the blocks yesterday morning, shaking off its caution following clear confidence from Wall Street. The index peaked and then subsided on the release of the RBA minutes nevertheless, possibly on disappointment the board didn’t signal a possible rate cut given July’s (bogus) surge in the unemployment rate. Then someone pointed out the July jobs numbers were released two days after the RBA meeting, and the index closed at its highs, 9 points shy of the post-GFC high.

I think we can declare that “correction” over. Last night on Wall Street, the S&P500 closed within 0.3% of its all-time high. The Dow needs another couple of hundred points, but the Nasdaq is already back in post-2000 blue sky.

Vladimir Putin will meet his Ukrainian counterpart next week, with EU representatives in tow. The push for conciliation began last weekend with a meeting of respective ministers, and one can only assume some progress towards a resolution is being made. Meanwhile the Ukrainian army and Russian separatists continue to stare each other down.

It’s enough for Germany to breathe a sigh. The DAX was up another 1% last night and at 9334 has pulled well away from the treacherous 9000 level.

US housing starts leapt 15.7% in July to an annual rate of 1.09m, smashing forecasts of 975,000 and marking an eight month high. The result represents a solid rebound from the surprisingly weak June result, but then the surprisingly weak June result has now been revised up to a not so surprising slip. Gotta love US data.

The US headline CPI rose 0.1% in July, as did the core CPI. Forecasts had 0.1% and 0.2% respectively. The annual headline rate has slipped back to 2.0% and the core to 1.9% having breached the supposed Fed comfort zone in June. Not that the Fed felt any discomfort, given it was just “noise”. Either way, an easing of inflation also eases fears of a sooner rather than later Fed rate rise, something Janet Yellen will likely confirm tomorrow night at the Hole.

Over in the UK, the July CPI surprisingly fell to an annual rate of 1.6%, down from 1.9% in June, and also dousing thoughts of a BoE rate hike. Weakness in the pound and the euro saw the US dollar index jump 0.4% to 81.88 – its highest level in almost a year.

That’s good news downunder. The Aussie is down 0.3% to US$0.9302.

The US ten-year bond yield rose 2 basis points to be back at 2.40%.

With tensions easing in Ukraine, and possibly in Iraq, energy fundamentals are back in the spotlight. Easing demand and growing supply is the trend, hence no one wants to be caught long oil. West Texas fell US$2.03 to US$94.59/bbl last night on the expiry of the September delivery contract to mark its lowest level since January. The October contract closed at US$92.81/bbl. Brent took a breather in the meantime, falling only US24c to US$101.62/bbl.

Base metal traders are cautiously taking easing geopolitical tensions as a positive, although copper remains in the doldrums. All base metals rose around 1% last night except copper, which fell 0.5%.

Iron ore fell US30c to US$93.00/t.

Despite another rise on Wall Street, the ASX200 may have to do some work to conquer fresh highs. The SPI Overnight closed down 8 points.

Micro considerations may yet make the difference nonetheless, given today and tomorrow are the two busiest days of the local result season. Amongst the avalanche today we’ll see results from AGL Energy ((AGK)), Brambles ((BXB)), Coca-Cola Amatil ((CCL)), Fortescue Metals ((FMG)), Wesfarmers ((WES)) and Woodside Petroleum ((WPL)). For all the other reports, please consult the FNArena calendar.

Glenn Stevens will provide a scheduled six-month testimony to a parliamentary committee today, Japan will release its trade balance, and the minutes of the last Fed meeting are due out tonight.
 

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