The Overnight Report: Wall Street Back On A High

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By Greg Peel

The Dow closed up 60 points or 0.4% to 17,039 (back over 17k again) while the S&P gained 0.3% to 1992 (new high) and the Nasdaq added 0.1%.

The ASX200 took off like a rocket at the open yesterday, jumping 43 points in a blink. We had a positive lead from Wall Street but this almost looked like fat finger stuff, sending the index smashing through both the previous post-GFC closing and intraday highs. The sellers soon jumped on it, and we slipped back all day to a tepid close. At 5638 we nevertheless still closed above the previous closing high.

HSBC caused a scare by suggesting its China manufacturing PMI for August would come in at 50.3, down from 51.7 in July and missing forecasts of 51.5. But China is not much in the spotlight at present.

With Ukraine, Iraq and Gaza all seemingly forgotten stories now and the US interest rate debate failing to discourage Wall Street, the local market has been able to concentrate on local results releases. Problem is, the peak days of yesterday and Wednesday provided such an avalanche it’s hard for the market to keep up with it all. Investors, brokers, analysts and FNArena reporters have all been overwhelmed.

The individual stories will likely thus play out a bit longer but so far we can call the season pleasing, without being exciting. Up to Wednesday, 115 stocks under FNArena database broker coverage had reported, 33 beat, 30 missed and the balance was in line with expectations. This count may vary from other assessments as FNArena does not take headline profit results as the blind indicator but rather drills down to look at underlying results (net of one-offs and accounting tricks), forward guidance and other stock-specific measures before declaring a beat/miss.

The fact around half of results have been “in line” highlights (a) that the quantum of beats/misses has been low in all but a handful of cases, which leads to (b) more and more companies pre-release headline numbers, thus getting any volatility out of the way before the “official” release.

While the peak of the US quarterly earnings season is well behind us now, there is still a trickle of results coming through from companies with tardy accountants. Tech dinosaur Hewlett Packard proved the PC is not yet dead despite the world’s addiction to tablets, and posted a 5% gain. The HP result boosted PC chip maker Intel (Dow).

Bank of America was this week fined US$17bn for the mortgage security indiscretions of Countrywide and Merrill Lynch, both of which the bank was ordered to acquire by the Fed/Treasury in 2008. With that out of the way, BofA jumped 4% last night, boosting JP Morgan (Dow) and all other financial stocks. Financial stocks have been laggards in 2014 and given they represent 17% of the S&P500 market cap, it’s difficult to have a meaningful rally without the banks joining in.

Wall Street is now becoming excited about the banks, and thus the market, but never mind that last night the S&P500 hit a new all-time high for something like the 28^th time this year.

Some pretty positive US economic data releases were also behind last night’s rally.

Sales of existing homes rose 2.4% in July, against expectations of a decline, to mark the fastest sales rate this year. Sale prices were up 4.9% year on year. The Philly Fed manufacturing index has jumped to 28.0 this month from 23.9 last month, confounding forecasts of 18.0, to mark its highest level in over three years. A flash estimate of the August manufacturing PMI suggested a jump to 58.0 from 55.8 in July, which would be the highest reading in four years. And the Conference Board leading economic index rose 0.9% in July, after consecutive 0.6% gains in June and May.

And the Fed cash rate is at zero. Again we say, what’s wrong with this picture?

Despite the positive data, the US ten-year yield slipped back 2 basis points last night to 2.40%. This probably suggests caution ahead of tonight’s speech from Yellen, and indeed the stock indices saw some squaring up at the close as well. Gold traders are getting the jitters nonetheless, sending gold down US$15.70 to US$1276.00/oz.

The US dollar index has been on the tear this week but it also saw a square-up, falling 0.1% to 82.15, which means the Aussie is up 0.1% to US$0.9302.

I noted yesterday that the LME closed on Wednesday night ahead of the release of the Fed minutes, having surged on what proved to be misguided expectations of dovishness. The minutes were actually more hawkish than dovish, hence base metal prices saw a little bit of a pullback last night although copper held its ground.

Spot iron ore continues to slip, falling another US40c last night to US$91.90/t. At this rate the iron ore price will soon have an eight in front of it again, setting off the alarm bells for Australia’s pure-play miners.

Just as well we’re at new highs.

Futures traders are unperturbed, sending the SPI Overnight up 10 points.

So stand by for the Yellen & Draghi double act tonight at Jackson Hole, and in the meantime Iluka Resources ((ILU)), Mermaid Marine ((MRM)), Sims Metal Management ((SGM)) and Santos ((STO)) will be among the local reporters today.

Then we can all get some sleep.
 

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