The Overnight Report: Veterans Provide Distraction

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By Greg Peel

The Dow closed up one point while the S&P rose one point to 2039 and the Nasdaq added 0.2%.

It was a mixed bag on Bridge Street yesterday with selling in materials and energy winning out over ongoing support for the telco and healthcare, with other sectors relatively steady. The ASX200 is sitting just above 5500 but is finding upside a difficult conquest at present.

Little in the way of direction was provided by yesterday’s rather bizarre NAB business confidence survey for October. Having fallen from plus 4 in August to plus 1 in September, the respondents’ measure of current business conditions soared to plus 13 last month, marking the biggest monthly move on record and the highest level since February 2008, just before the proverbial began to hit the fan.

The result left economists scratching their heads and wondering just what had changed. Was there one obvious element in the mix that looked a bit suspect? Not really. Segments of profitability, trading and employment all saw big moves and the jump was consistent across the states. Most confusing, nonetheless, was an offsetting fall in business confidence to plus 4, down from plus five in September and plus 7 in August. It’s strange that Australian businesses should be suggesting utopian conditions in October yet rapidly losing confidence in what lies ahead.

November’s report will be closely watched.

Japan posted a record low current account surplus, it was announced yesterday, for its first fiscal half 2014. While a weaker yen over the period improved the value of Japan’s offshore investments, it did not sufficiently serve to offset the anchor that is Japan’s trade deficit. Japanese exports rose only 5.5% in the period when imports rose 6.7%, the bulk of which was LNG. Japan is importing LNG to replace lost nuclear power, thus the recently announced first two restarts of Japanese reactors, expected early next year, may finally point towards some trade balance relief ahead.

Japan will continue to buy LNG from Australia, as it has done since 1989, just not quite as much. Two restarts is just a drop in the bucket nonetheless, and it will be years before Japan restores its nuclear capacity to anything like pre-Fukushima levels. Meanwhile, Japan will re-enter the market as a buyer of Australian uranium over that time.

The big news out of Japan yesterday, albeit unconfirmed, was that Prime Minister Abe is planning to dissolve parliament and hold a snap election. Abe’s support has been slipping recently and the plan would be to shore up support with new parliamentarians, given the polls still favour an Abe win. The further rumour is that he may cancel next year’s planned second sales tax hike, probably because the first one this year had a greater negative economic impact than the government had assumed. Or at least postpone it. This would be a nice little campaign kicker.

It was a quiet session on Wall Street last night for the Veterans’ Day bank holiday, which saw the bond market closed and many traders taking a four-day weekend. The indices meandered along in a smallish range and there were no major data releases to consider.

Boston Fed president Eric Rosengren took the opportunity to suggest a lack of inflation in the US, particularly wage inflation, implies there’s more slack yet to be taken up in the US labour market than a 5.8% official unemployment rate indicates. This was hardly a shocking assessment, as all on Wall Street appreciate that “official” jobs figures fail to expose the full picture, including the Fed itself. Rosengren went on to suggest the Fed should remain patient on monetary policy (ie a rate rise) until there is clear evidence inflation is heading towards the targeted 2%.

This was no shock either, given Rosengren is a known dove. He is not due to take a turn on the FOMC until 2016.

The US dollar initially rose on Abe election speculation last night but eventually fell back, sending its index down 0.4% to 87.51. As to whether Rosengren’s comments had anything to do with it is debatable, and the bond market was closed so no indication there. But there were some big moves in related instruments.

Gold jumped US$21.20 to US$1170.00oz. All markets were a little thin last night which may explain the volatility, but gold is currently fighting a battle at these new sub-1200 levels. The Aussie has jumped a cent to US0.8703, none of which occurred in the local session. Again one can likely point to a thin market.

The oils posted a mixed day, which have been rare of late, with West Texas rising US45c to US$77.82 and Brent falling US59c to US$81.67/bbl.

It was also quiet on the LME, where traders mostly squared up ahead of Thursday’s Chinese data releases. The weaker greenback helped all metals to slightly higher closes, with nickel up 1%.

Iron ore was unchanged at US$75.50/t, which is as good as a win these days.

The SPI Overnight fell 8 points.

Westpac’s local consumer confidence measure is out today and tonight sees eurozone industrial production.

There are quite a lot of AGMs scheduled for today including the likes of Commonwealth Bank ((CBA)) and Fortescue Metals ((FMG)), while Stockland ((SGP)) will hold an investor day, Paladin Energy ((PDN)) will release its quarterly production report and DuluxGroup ((DLX)) will post its FY14 result.

Rudi will appear on Sky Business this evening at 5.30pm.
 

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