The Overnight Report: Buy It Anyway

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By Greg Peel

The Dow closed up 139 points or 0.9% while the S&P gained 1.1% to 2068 as the Nasdaq added 1.3%.

Local Market

Bridge Street again exhibited resilience yesterday as a 30-plus point fall at the depths became only a 14 point fall at the death for the ASX200. Consumer discretionary saw some buying while all other sectors finished mildly down.

Australian average house prices rose by a solid 1.9% in the December quarter. The year on year growth rate of 6.8% is the slowest since June 2013 but bear in mind we’ve since had a rate cut. NAB’s monthly business confidence survey was also conducted pre-cut so a flat reading for “conditions” at plus 2, and a one point tick up for “confidence” to plus 3, are not telling the latest tale.

China Disinflates

The index hit its low-point yesterday after the release of China’s inflation data for January. The annualised headline CPI came in at 0.8% — down from 1.5% in December, missing forecasts of 1.0%, and representing the lowest level since 2009. The fear now is that China is in a deflationary spiral. This is exactly the same concern markets had for Europe up until the ECB finally called in the cavalry.

Lower prices for oil and other commodities were clearly primary drivers of the weak inflation number, aided by warm weather that has seen fruit & veg and fish prices fall. Food is a significant element of the average Chinese household budget. Beijing doesn’t publish a “core” CPI, ex food & energy, as developed economies do, so price volatility must be taken into account, but either way we can only assume the PBoC will be preparing something more active on the monetary policy front sooner rather than later.

Any Port in a Storm

The Greek drama continues to play out, swinging from hope to despair and back to hope again daily. After the prime minister’s little anti-austerity rant on Monday night, last night the Greek government announced plans to proceed with the privatisation of the Port of Piraeus, the country’s largest port. This is seen as an act of conciliation towards the creditors.

Presumably we’ll soon see the Parthenon in the real estate classifieds. “Spectacular views, old world charm, light and airy” etc.

There was also a rumour the EU was considering giving Greece a six-month debt repayment extension, although this was later denied.

Oil Tanks

Speaking of swinging back and forward, it was a down-day in the volatile oil markets last night, with West Texas falling US$2.59 or almost 5% to US$50.28/bbl and Brent falling US$1.59 or 2.7% to US$56.68/bbl.

Although this is a bit of a headless chook market at present, last night’s supposed impetus was a warning from the US Energy Information Administration that despite falling rig counts, the global supply glut will only get worse before it gets better. Both the EIA and the International Energy Agency are calling oil averaging in the fifties for 2015, but Citi, for one, suggests prices in the twenties may be seen before the average is established.

Your guess…

Wall Street

The oil price fall proved an inevitable drag on US indices but the ebb and flow of Greece fears helped stocks to an up-day in general, albeit many shrug off Greece as background noise given the tiny size of the country’s economy, what there is of it.

Beyond that, the almost forgotten US earnings season continues and after over two-thirds of S&P500 companies have reported, the “beat” ratio is still running at just over 70%. The common themes are cheap energy and the strong dollar, which have boosted/impeded December quarter results.

The dollar index rose last night by 0.2% to 94.72 and the US ten-year yield added another 4 basis points to 1.99%. Gold slipped back US$8.10 to US$1233.40/oz. The Aussie is little changed at US$0.7773.

Metals

LME traders focused on the weak Chinese inflation numbers last night, hot on the heels of the very poor trade data released on the weekend, in selling down all base metals by one to two percent. Trading was light one week out from the Chinese New Year break.

Iron ore rose US60c to US$62.60/t.

Today

The SPI Overnight closed up 24 points or 0.4%.

Japanese markets are closed today but locally we’ll see Westpac’s monthly consumer confidence survey and December housing finance data.

It’s the first big day of the local results season today, with many bigger days to come. Today’s reporters include AGL ((AGL)), Boral ((BLD)), Commonwealth Bank ((CBA)), CSL ((CSL)), Suncorp ((SUN)) and several more.

Rudi will make his regular appearance on Sky Business, 5.30-6.00pm.

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