The Overnight Report: Putin On A Show

This story features NEWCREST MINING LIMITED. For more info SHARE ANALYSIS: NCM

By Greg Peel

The Dow rose 110 points or 0.6% while the S&P gained 1.0% to 2088 as the Nasdaq jumped 1.2%.

Jobs Scare

Bit of déjà vu yesterday as Australia’s unemployment rate was revealed to have pole-vaulted to 6.4% in January from 6.1% in December on the mere net loss of 12,200 jobs and an unchanged 64.8% participation rate. December’s result was revised up to an addition of 42,300 jobs.

Hmmm.

The ABS has had several months to get its act together and it’s all we’ve got to go on, so if this result is accurate then the RBA’s expectation of the unemployment rate creeping up to 6.5% by mid-2016 – a forecast justifying this month’s rate cut – seems way off the mark. We could be there next month. As such, CBA is among those economists now assuming another rate cut is inevitable in March, and maybe yet another as soon as May as well.

For the record, last night Sweden cut its cash rate from zero to minus 0.1%.

The stock market appeared yesterday to take on a more sombre mood, looking to the economic implications of rising unemployment rather than the benefits another rate cut might bring. We must remember that while everyone might get excited about rate cuts, particularly those up to their gills in mortgage repayments, they reflect a slowing overall economy.

But we’re also into the thick of result season now and that means a lot more “alpha” movement – individual stock prices moving on result numbers and perhaps affecting whole sectors – alongside “beta” movement – general market sentiment based on global macro developments and what’s going on in the US, China and so forth.

Euro Jumps

The latest Greek news for today (yawn, oh excuse me) is that the ECB has raised the limit on the amount Greece can borrow through the central bank’s Emergency Liquidity Assistance program. This no doubt reflects that fact that as the stand-off between the new government and its creditors drags on, Greece is fast running out of money.

Last night’s eurozone industrial production result for December did not provide a lot of comfort, being unchanged from November after three months of encouraging growth. Over 2014, production contracted 0.2%.

But the Greek news was enough to send the euro higher against the greenback and we can also throw in the marathon talks in Minsk between the leaders of Russia, Ukraine, Germany and France which have resulted in a ceasefire being called in eastern Ukraine.

Seen that movie before. Give it a week.

Either way, the US dollar index fell a significant 0.9% overnight to 94.10, on strength in the euro and also on weak US retail sales data.

Wall Street

US retail sales fell 0.8% in January having fallen 0.9% in December. To gain a true perspective we have to extract the 9.3% plunge in gas station sales, reflecting the drop in oil prices, but that still leaves January flat on December.

Commentators have been assuming since last year that the fall in the oil price will provide a big boost for US consumer spending. With regard the official retail sales number, presumably this would imply flat results as the fall in gas station sales is offset by a rise in spending elsewhere. But this is yet proving elusive.

Wall Street nonetheless shrugged off the weak data and cited the Ukraine ceasefire and subsequent bounce in the price of oil as reason enough to send the indices almost back to their record high levels. The Nasdaq also provided an updraft for the broad index following a strong earnings result from Cisco and the relentless charge of the world’s largest company, Apple.

Commodities Bounce

Oil price movements are becoming almost as tedious as Greek news given the crazy day to day fluctuations on the slightest little thing. Last night both oils rose almost 5% with West Texas up US$2.38 to US$51.46/bbl and Brent up US$2.62 to US$57.41/bbl.

On the LME they were also citing the ceasefire, and the latest Greek news, as reason to buy the metals they’ve been selling all week. Throw in the drop in the US dollar, which also provided a fillip for oil, and we saw all metals higher including 2% moves for copper, lead and tin.

Gold did not participate on the dollar drop, as it is steady at US$1222.80/oz. The Aussie kicked up 0.4% however, to US$0.7746.

Today

So we have oil up, base metals up, iron ore up, and Wall Street up. How will we fare today? The SPI Overnight closed up 30 points or 0.5%.

Glenn Stevens will provide a mandatory testimony to a parliamentary committee today to speak to last week’s RBA quarterly Statement on Monetary Policy. Tonight the first estimate of eurozone December quarter GDP will be released, while the US will gauge consumer sentiment in the wake of the weak retail sales number via the fortnightly Michigan Uni survey.

Newcrest Mining ((NCM)) will provide the highlight of today’s handful of local earnings reports.

Oh dear, take a look at the calendar. Be afraid.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms