The Overnight Report: Release The Doves

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By Greg Peel

The Dow closed down 17 points or 0.1% while the S&P lost a point to 2099 and the Nasdaq rose 0.1%.

Freight Frenzy

Ask not for whom the bell tolls, it tolls for Australia’s largest listed freight and logistics company and perennial disappointer Toll Holdings ((TOL)). Yesterday’s announced takeover bid from Japan Post sent Toll stock up 47% and overshadowed a 4% jump for Australia’s biggest standalone energy company, Woodside Petroleum ((WPL)), which shocked the market by raising its dividend despite the wallowing oil price.

So yesterday local traders basically bought anything that wasn’t nailed down, sending the index up 1% to a new post-GFC high. Never mind that the FNArena Result Season Monitor is showing analyst rating upgrades to downgrades running at 13/41 with 86 earnings reports in, and that the vast bulk of those downgrades are on calls of overvaluation.

It’s a nice change to see the Japanese on the takeover trail again though, rather than the other mob. Next they’ll be buying apartment blocks in Surfers.

On that note, the bank of Japan decided to maintain its current level of stimulus at yesterday’s policy meeting, despite the disappointing GDP result.

Fed Fearful

The minutes of the last Fed policy meeting, released last night, suggested to the market the Fed is more likely to hold off on its first rate rise rather than barrel in. “Many” members of the FOMC suggested at the meeting a rate rise too soon may harm the US economic recovery while only “several” warned a too-late move risked a spike in inflation.

Given markets had been assuming the Fed remained on course, such that the rate rise would come by June, this came as a surprise. No more was this evident than in the US bond market where this week’s selling rapidly turned into buying once more. The benchmark ten-year yield fell 8 basis points to 2.07%.

Not so long ago one might have expected the US stock market to soar on news the Fed would remain more dovish, but realistically the Fed is sending signals of “we’ve really got no idea when” rather than being specifically accommodative. Stock traders have grown weary of running back and forth on every slight change of Fed mood and now simply accept that there will be a rate rise eventually, and the exact timing is not critical. So the stock market reaction to the minutes was muted.

“International developments” now feature in Fed thinking, and given uncertainty surrounding Greece, the impact of ECB QE come March, Ukraine, Syria-Iraq and so on no one can really blame the Fed for keeping its options open. No one in the market knows for sure how these things are going to play out either.

Data Disappoints

A more dovish Fed may also be timely, given the US recovery seems to be slowing a little. Last night’s economic data releases were less than encouraging.

 The US producer price index fell a record 0.8% in January. Take out the impact of the big plunge in the oil price, and the core PPI still fell 0.3%. Housing starts fell 2% in January, although heavy snow in some regions was blamed, while industrial production rose only 0.2% when 0.4% was forecast.

And speaking of oil, after a three-day rally worth 9%, the West Texas crude price fell last night because someone said “let’s sell it today for a change”. The Fed minutes were blamed, but that connection is a bit vague. WTI is down US$1.81 to US$51.72/bbl and Brent is down US$2.34 to US$60.12/bbl.

The US dollar index is up 0.1% at 94.17 while the Aussie is unmoved at US$0.7816.

Metals

Gold traded under 1200 on the release of the Fed minutes until someone pointed out that’s the wrong direction, if the Fed’s holding off, so back it went to close little changed at US$1210.00/oz.

Things were quiet on the LME with the Chinese absent, with only a 1% fall in zinc much moving the dial.

Spot iron ore fell US20c to US$63.40/t.

Today

The SPI Overnight fell one point.

Today is the biggest day on the local reporting season calendar, in terms of larger caps. Reporters today include AMP ((AMP)), Brambles ((BXB)), Fairfax Media ((FXJ)), Origin Energy ((ORG)), Virgin Airlines ((VAH)) and Wesfarmers ((WES)), just to name a few.

What surprises are there in store today?

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