The Overnight Report: Pause For Thought

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By Greg Peel

The Dow closed down 24 points or 0.1% while the S&P was flat at 2017 and the Nasdaq added 0.2%

After the BoJ-inspired surge on Friday, it was of little surprise to see the ASX200 pull back a little yesterday. Materials and consumer staples led the 20 point decline, following another fall in the iron ore price and a badly received September quarter sales report from Woolworths ((WOW)). It mattered not that the Dow had jumped nearly 200 points on Friday night given Wall Street was responding to fresh Japanese stimulus after Bridge Street already had.

Neither would Saturday’s announced drop in China’s official manufacturing PMI have brightened the mood. Yet we did see a contrasting calculation from HSBC, whose own manufacturing PMI announced yesterday rose to 50.4 from 50.2 in September compared to Beijing’s drop to 50.8 from 51.1. Yesterday Beijing released its official services PMI which also showed a drop, to 53.8 from 54.0 in September, representing a nine-month low.

Australia’s manufacturing PMI rose to 49.4 in October from 46.5, but does tend to bounce around an awful lot. In other Australian data releases yesterday, the TD Securities inflation gauge rose to 2.3% annualised from September’s 2.2% and the ANZ job ads series rose 0.2%. Building approvals fell by 11% in September following August’s 3% rise, but if we strip out lumpy apartment block approvals, single home approvals fell 3.5% in September but are up 8% year on year.

The eurozone managed to pleasantly surprise, for once, with an increase in its manufacturing PMI to 50.6 from 50.3 when economists had expected 49.9. UK economists were also surprised by a rise to 53.2 from 51.6 for the UK PMI. The star was nevertheless the US equivalent, which rose to 59.0 from 56.6, suggesting expansion at quite a clip.

By contrast, US automakers saw mixed sales results in October while construction spending dropped 0.4% in September.

After reaching new all-time highs on Friday night, Wall Street meandered with little direction last night. Direction was not an issue for the US dollar nevertheless, which last night continued the rally it resumed against the yen post the BoJ announcement. The dollar index is up 0.5% to 87.28.

The further rise in the greenback had its impact on the Aussie, which has posted a rather volatile past 24 hours. In the wash-up, the Aussie is over a cent lower at US$0.8693, with weaker Chinese data and a lower iron ore price no doubt contributing.

China would also have affected sentiment in oil markets last night, as would the US dollar, such that West Texas has now finally closed under the 80 mark with a US$2.32 fall to US$78.40/bbl last night, its lowest level since June 2012. Brent fell US$1.54 to US$84.44/bbl.

Base metals managed to hold their ground in London, and indeed aluminium decided to take off and post a 2% gain. Alas, the same was not true for iron ore, which fell another US70c to US$77.80/t.

Gold fell US$2.80 to US$1168.30/oz.

Now that the NYSE closes at 8am Sydney time, so does the SPI Overnight. Lower iron ore and oil prices should impact on the local market today but the SPI Overnight is down only 3 points.

It’s Cup Day today, so Victoria is closed and everyone else will be largely inactive from lunch time. Not the RBA however, which typically announces the rate that stops the nation at 2.30pm. No change is expected, nevertheless. This morning we’ll also see retail sales and the trade balance.

The eurozone will announce September wholesale inflation tonight, while factory orders will draw focus in the US. It’s also the US mid-term elections tonight and the Republicans are tipped to achieve a majority in both houses, leaving Obama as a lame duck president for the remainder of his term. Mind you, Clinton had the same problem.

Time for me to make my annual Cup tip, which is always a highly scientific process of picking a horse with a name that somehow relates to current financial market activity. Brambles caught my eye straight up, for obvious reasons, but then Au Revoir and Signoff both seemed suited with regard the end of QE3. I’ll pick Signoff.

Happy punting.
 

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