The Overnight Report: Earnings And Ebola

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By Greg Peel

The Dow closed up 216 points or 1.3% while the S&P gained 1.2% to 1950 and the Nasdaq added 1.6%.

For the last couple of weeks we have seen the Australian market mostly move as one as it tumbled to its 5150 low in the ASX200 before rebounding back towards 5400, with sectors in lock-step. This suggests blanket “sell equities” and then “buy equities” trades. Yesterday was a different story, as traders took the opportunity of weakness on Wall Street to rejig portfolio positioning to account for new valuations and more sector-specific preferences.

The index subsequently bounced up and down all day in a smallish range, having first opened down only 19 points despite the 150 point fall in the Dow. By the final bell, energy, materials and industrials were lower while banks, healthcare and the telco were higher. We’re back to the middle of the range from the September high to the October bottom and it appears the market is taking the opportunity to shift to a more defensive stance.

HSBC’s flash estimate of China’s manufacturing purchasing managers’ index (PMI) for October came in at 50.4, up from 50.2 in September and a tick better than 50.3 forecasts. There was little joy in the result, however, given the sub-indices of new orders, producer prices and factory output all slowed. It was far from a turnaround result.

The flash estimate of eurozone composite PMI, which incorporates manufacturing and services, came in at 52.2, up from 52.0 in September. Again there is no talk of a turnaround in the result, the second lowest read for the year. Yet European stock markets saw it as a good result, or perhaps those short on an expected poor result were caught out. Germany jumped 1.2% and France 1.3%.

If you think global stock markets are volatile at present, craggy old oil traders have been shaking their heads in disbelief at the recent wild swings in crude prices. Having plunged on Wednesday night on one week’s US inventory data, last night the slight ticks up in the Chinese and eurozone PMIs were enough for Brent to bounce back US$2.13 to US$87.66/bbl and West Texas to rise US$1.64 to US$81.98/bbl. Clearly there are quite a few shorts in the energy markets.

It is now clear that Ottawa’s shotgun killer was indeed taken out inside Canada’s parliament building (authorities had not released this information this time yesterday), and it appears he was a lone nutter and not part of a more organised group, although authorities are taking all precaution. Whatever the case, fear sparked by the shooting news on Wednesday night eased last night.

This allowed Wall Street to return focus to quarterly earnings results, which are finding it hard to make their mark amongst the wild October volatility. But when two big international groups and Dow components post solid earnings beats, the market knows something must be right with the world. Caterpillar shares rose 5% and 3M shares rose 4.4%, and both are considered – Caterpillar in particular with regard the global resource sector – to be macro benchmark stocks.

AT&T (Dow) did not fare quite so well, having reported a miss late on Thursday night, and its shares fell 2.4%. After the closing bell this morning, Amazon posted a shocker, and its shares are down 11% as I write, while Microsoft (Dow) managed a beat, and its shares are up 3.8%.

Maybe the new world has not yet taken over the old, although Microsoft has been working hard to reinvent itself as new world and indeed Amazon is one of its victims.

Last night’s US economic data releases included a flash estimate of October manufacturing PMI, which saw a fall to 57.0 from 57.5. But they’re still solid numbers. The Chicago Fed national activity index swung to plus 0.47 in September from minus 0.25 in August, while the Conference Board leading economic index increased by 0.8% in September, having been flat in August. The FHFA house price index beat expectations with a 0.5% rise in August for a 4.8% year on year gain.

So if we add together global data, the oil price bounce, solid Cat and 3M results and an easing of terrorism fears, the stage was set for a solid run on Wall Street. By mid-afternoon the Dow was up over 300 points. At this point, however, the “real” US index – the S&P500 – hit the technical level of 1960, where the 100-day and 50-day moving averages converge. This was cause enough to back off, but then the news hit the wires that a New York City medical professional who had returned from West Africa within the past three weeks had presented with possible symptoms of Ebola.

This US screening system is truly rock solid.

If an excuse was needed, Ebola in New York was good enough, and the Dow fell back around 100 points before the close. Commentators point out, nevertheless, that since all those who were quarantined as a result of contact with the two Texas Ebola victims were cleared, market fear has subsided somewhat. Mind you, that won’t stop average NYC citizens electing to stop using the subway if this new case is confirmed.

On the strength in stocks, the US ten-year bond yield rose 5 basis points to 2.28% last night. The US dollar index gained another 0.1% to 85.84, helping gold down another US$8.20 to US$1232.50/oz.

The Aussie is off 0.3% to US$0.8757 although it has flown around a bit over the past 24 hours. RBA governor Glenn Stevens spoke yesterday but it was all about kicking some bank butt with regard uniform electronic payment systems, as the humble cheque declines in acceptance, and nothing about interest rates, currencies or housing bubbles.

It was another thin session amidst LME Week for base metal trading, with no direction apparent. Aluminium fell 1% but copper rose 0.5% and the others were little changed.

Things were not quite so benign for iron ore nonetheless. Just when it seems the iron ore price might be bottoming it crunches back again. Last night the spot price fell US$1.50 to US$80.00/t.

The SPI Overnight closed up 17 points or 0.3%.

On Wednesday night the S&P500 fell 0.7% and yesterday the ASX200 closed almost flat. Last night the S&P rose 1.2% but the ASX200 futures are only indicating a 0.3% rise. Bridge Street is not married to Wall Street, and it appears our market is now trying to consolidate towards a more stable level after another wild October ride.

China will publish property price numbers today and the UK will release its first estimate of September quarter GDP.

AMP ((AMP)) will offer a quarterly update today while Qantas ((QAN)) and Carsales.com ((CRZ)) are among those holding AGMs.
 

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