The Overnight Report: Terror In Canada

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By Greg Peel

The Dow fell 153 points or 0.9% while the S&P lost 0.7% to 1927 and the Nasdaq dropped 0.8%.

There was no great surprise in another sea of green on the local market yesterday on the back of a lead from Wall Street, which had hinted that perhaps this October sell-off has run its course. All sectors participated in a “buy everything” day. Yesterday’s CPI release was never going to make much difference.

In the June quarter, Australia’s headline CPI hit 3.0% and the RBA’s core measure 2.9%, fuelling concerns of an inflation spike and subsequent rate rise. But the RBA knew what was coming, and sure enough yesterday’s 0.5% quarter on quarter gain in the headline, ahead of 0.4% expectations, still allowed the annualised CPI to plunge to 2.3% as was forecast. The difference? Basically the removal of the carbon tax. The RBA’s core number fell to 2.6%, below 2.7% expectation.

The results support the RBA’s current policy of rate stability, as outlined in the minutes released this week.

Yesterday’s release of Japan’s September trade balance indicated just how damaging the 2011 tsunami continues to be. A weaker yen allowed for a promising 6.9% increase in exports, led by parts for the new iPhone6, but the flipside was more expensive imports, which rose 6.2%. The big import item is natural gas, needed to replace Japan’s loss of nuclear power as its reactors remain idled. As a result, Japan’s trade deficit increased once more, which is the opposite of what Abe is trying to achieve.

After Tuesday night’s big rally, Wall Street opened flat last night and managed to hang onto gains right up until midday, when two pieces of news coincidently hit the wires.

A scarf-wrapped gunman shot dead a soldier standing guard at the War Memorial in Canada’s capital Ottawa, before moving on to enter the parliament building. Shots were fired as MPs barricaded themselves inside the chamber but the gunman escaped. He remains at large and it is unclear whether he is acting alone, hence Canada’s capital is in lockdown.

It is as yet unknown whether he represents IS.

The US Energy Information Agency last night released weekly oil inventory numbers, and they proved to be higher than forecast. The forecasters virtually never get the volatile weekly numbers right, but expectations of a 2.5m barrel increase were blown out of the water by a 7.1m barrel result. West Texas crude subsequently plunged US$2.12 to US$80.34/bbl, just as it had looked like a bottom maybe have been found for oil prices. Brent fell US$1.57 to US$84.64/bbl.

While the news from Canada was enough to spark fear across the globe, and particularly in its southern neighbour, it was the oil price drop that was blamed for spooking stock markets. There is a robust debate underway across the globe as to whether the big fall in the price of oil these past months is a good thing or a bad thing for the global economy. The optimists argue lower prices are the result of a surge in supply, and lower energy prices are good for any economy. The pessimists argue lower prices are the result of a collapse in demand, implying slower global growth. Realistically, they’re both right. That said, US$80 is seen as a line in the sand for WTI which if broken, could spark a technical collapse.

Numerous mentions have been made these past weeks in business media of the US$33/bbl price seen in 2008. We still await OPEC’s production decision at the end of this month.

Big-name US earnings results were mixed last night. Yahoo had posted a beat in Tuesday night’s after-market and rose 4.5% against the tide last night. Boeing (Dow) also beat, but management warned of weak cash flow so its shares fell 4.5%.

Gold fell US$7.80 last night to US$1240.70/oz, following another jump in the US dollar index of 0.5% to 85.75. If markets now expect the Fed to hold off, it is not apparent in market movements. The US ten-year bond yield rose 2 basis points to 2.23%. The rising greenback is once again a headwind for commodity prices.

It was nevertheless a mixed session on the LME last night, which saw aluminium up 1%, zinc up 1.5%, and copper down 0.5%.

Iron ore was unchanged at US$81.50/t.

The Aussie is off a tad at US$0.8778, with even the forex cowboys finding little excitement from the benign CPI data.

The SPI Overnight closed down 28 points or 0.5%.

On the subject of slowing global growth, today’s data releases across the world will be critical. It’s “flash” day for October manufacturing PMIs, beginning this morning with HSBC’s estimate for China. A eurozone estimate then follows and ditto a US estimate.

NAB will release a September quarter summary of its business confidence survey today while RBA governor Glenn Stevens will be making a speech.

It’s a busy day on the local corporate front today, with tea and bikkies in high demand across several AGMs, including those of Amcor ((AMC)), Suncorp ((SUN)) and Toll Holdings ((TOL)), while Leighton Holdings ((LEI)) will provide a quarterly update and ResMed ((RMD)) releases quarterly earnings.

Rudi will appear on Sky Business at noon.
 

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