The Overnight Report: Endless Greece

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By Greg Peel

The Dow closed down 6 points while the S&P was flat at 2068 and the Nasdaq added 0.3%.

Blood in the Pit

A pullback has been inevitable for the ASX200 ever since the index posted a 12-day rally but yesterday’s selling was concentrated in specific sectors, leading to a mixed bag of sector moves. The latest drop in the oil price saw energy down 2.4%, and concerns over an ever-weakening Chinese economy had materials down 1.3%, but the big move was a 3.9% fall in healthcare thanks to a weak results report from top-ten market cap member and market darling CSL ((CSL)), which fell 8%.

By contrast, utilities rose 2.3% and even consumer discretionary saw some buying.

It may have been a down-day on the index but while the US stock market has trod water in 2015 – the Dow is about breakeven for the year – the local index is up 6.6% since the end of 2014 despite the damage experienced in the resource sectors. Of course the US indices are way above their old pre-GFC highs now while the ASX200 is still over 1000 points shy, but a good start to the year has fed into consumer confidence.

Throw in cheaper petrol prices, and the RBA’s first rate cut in over a year, and we’ve had the perfect recipe for a surge in sentiment. And surge it did in Westpac’s February survey, up 8% to the highest level since January 2014, when the market was still strangely excited about a bloke called Tony Abbott.

The local housing market also boomed in December, adding to the general wellbeing. The annualised numbers in December give us the 2014 score card, which saw the volume of loans to owner-occupiers rise 4.1%, the value of those loans rise 10.6%, the value of loans to property investors rise 17.9%, and the value of loans to builders rise 9.8%.

No wonder analysts are suggesting the market is underestimating the housing recovery.

Greek Merry-Go-Round

Up, down, up, down, or more realistically, round and round. Each day this week has seen US stocks markets either rise or fall depending on the latest fluctuating news from Europe, and last night began as another down-session. Tuesday’s rumour that Greece could be granted a six-month extension to its bail-out program has been summarily dismissed, and now the eurozone finance ministers will meet to discuss just what to do with the problem child.

No one can quite determine what the outcome for Greece might be, other than to know that were it not for a tangled web of global debt obligations and derivative hedge positions, Greece’s rope would have been cut long ago.

The US stock indices were nevertheless all over the shop last night, with the Dow down over 100 points at lunch time before rallying back to be briefly in the green. Once again, a drag was provided by lower oil prices.

Wednesdays are weekly inventory reporting days in the US, and last night the EIA confirmed US crude supplies are holding steady at their highest level in 80 years. Perhaps the market is beginning to appreciate that there is a big time lag between a falling rig count and lower immediate supply. West Texas fell US$1.20 to US$49.08/bbl and Brent fell US$1.89 to US$54.79/bbl.

Metals Hammered

Greek fears sent the euro lower last night and thus the US dollar index up by 0.3% to 95.00. The rising greenback is proving too much for gold, which fell US$13.00 to US$1220.40/oz, but is also assisting the Aussie to fall, which is down 0.8% to US$0.7712.

And the greenback continues to apply pressure on base metal prices, but the theme at present on the LME is simply one of selling ahead of next week’s Chinese New Year, which basically sees the world of metals shut down for a week. Copper is slightly lower but aluminium is down 1%, lead 2% and tin 3%.

Iron ore was unchanged at US$62.20/t. The LME will still be open during CNY, but the spot iron ore market will shut up shop.

Today

A flat session on Wall Street has not prevented the SPI Overnight from rising 14 points or 0.2%.

It’s that time of the month when we can all have a giggle over the ABS’ attempts at providing Australian unemployment data.  The eurozone will publish industrial production numbers tonight and the US will be looking for any cheap-oil impact on January retail sales numbers.

Today’s local earnings season highlights include Mirvac Group ((MGR)), Rio Tinto ((RIO)) and Telstra ((TLS)). Many an investor is feeling anxious this morning about just what goodies Rio’s management is prepared to hand out with its result, given the collapsed iron ore price.

Rudi will make an appearance on Sky Business at noon, for Lunch Money, and again between 7-8pm, for Switzer TV.
 

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