The Overnight Report: Aussie Rockets

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By Greg Peel

The Dow closed up 72 points or 04% while the S&P gained 0.3% to 2114 and the Nasdaq lost 0.1%.

Currency Crisis

On Monday the ASX200 hit an intraday high of 5985 following a rally largely driven by the iron ore price rebound, but supported by renewed buying in yield stocks. Yesterday, despite another solid gain in iron ore, the market retreated on profit-taking. All sectors bar the supermarkets were trimmed, including the previously surging materials and energy sectors.

If the ASX200 were Icarus then the 6000 level is the sun. We might call this the fourth failed attempt at an assault on the big figure, and a further indication, specifically with regard the yield stocks, that the line across which “overvaluation” is deemed is plain to see.

In focus on the local bourse today will nevertheless be overnight action in the Aussie dollar. On the RBA’s decision not to cut this month, the rebound in oil and iron ore prices, Chinese stimulus and the expectation the Fed will raise later rather than sooner, the Aussie has been steadily creeping up from the bottom end of its recently entrenched trading range to the top end. Last night it broke out, and all hell broke loose.

A combination of short-covering and technical buying saw the Aussie surge a whopping 2.2% to be currently at US$0.8022. A 0.7% fall in the US dollar index to 96.08, and arguably a growing belief the greenback is now undergoing a clear pullback, provided last night’s catalyst.

What does the RBA do now? At 76, the board was still calling the currency overvalued (albeit specifically against non-US currencies). If the RBA is wavering over whether to cut or not to cut next week, maybe an 80 Aussie might provide a prompt.

Greece Watch

In last night’s episode, Greek Prime Minister Alexis Tsipras warned he may have to hold a referendum if Greece’s creditors continue to insist on strict austerity measures as a requirement for further bail-out funds. This is a second clear indication Tsipras has found himself in an untenable position – first benching his firebrand finance minister from the negotiating team in the hope the creditors would capitulate and now all but admitting Greece simply needs the money.

Otherwise, Greece could withdraw itself from the eurozone. Were Tsipras to agree to the required austerity measures, he would be completely contradicting the platform on which his party campaigned for and won the general election. Thus a referendum would be necessary, but what would it achieve? The Greeks would likely stick to their guns and denounce austerity, and we’d be back where we are right now. Presumably Tsipras would expect the ECB to extend further bridging loans to keep the country afloat while the referendum is organised and conducted. He would buy more time. But time for what? To hope the IMF-ECB-EC caves in?

Can we please just get this over and done with?

In other EU news, the first estimate of UK March quarter GDP came in last night at a much lower than expected 0.3% growth, slowing annual growth down to 2.4% from 2.8% in the December quarter.

Weak Data

Huge fun and games on the NYSE last night as Twitter’s earnings result, scheduled for aftermarket release, was legitimately published by a third party inside the last hour of trade. Twitter called a trading halt before bringing its release timing forward and confirming the accuracy of the “leak”, which featured a miss on first quarter revenues and disappointing second quarter revenue guidance. Once re-opened, Twitter shares closed down 18%.

The early results were published, ironically, on Twitter.

The afternoon’s entertainment also came with a warm-up act in the morning session when news hit the wires the Iranian navy had seized a US cargo vessel in the Persian Gulf. Up here near all-time highs the air is thin and the market is trigger happy, and so the Dow plunged 100 points very quickly.

It was then revealed the cargo ship was in fact flying a Marshall Islands flag and thus the Dow rebounded to right back from whence it came.

Beyond the day’s entertainment, reality saw the Conference Board monthly measure of US consumer confidence fall to 95.2 from 101.4 in March when economists had forecast 102.5. The Richmond Fed activity index recovered to minus 3 from minus 8 in March when minus 2 was expected. And the Case-Shiller house price index saw a recovery to 5.0% annual growth, suggesting the US housing market is picking up again after a dip.

Thus the data remain mixed, but the confidence measure was the one the market focused on. As noted, the US dollar index dropped 0.7%. Wall Street held its ground given any weak data means the Fed will not jump early. Gold rallied another US$10.20 to US$1211.90/oz which this time makes sense, if one assumes the Fed holds off.

But bucking the trend was the US ten-year yield, which rose 5 basis points to 1.97%. Traders were simply squaring up ahead of tonight’s Fed statement release.

Commodity Mix

Iron ore is up another US50c to US$59.20/t.

The weakening US dollar is supporting commodity prices at present, but after a couple of solid sessions, trading was mixed on the LME last night. Aluminium decided to suddenly jump 2% and copper gained another 0.5%, but all other metals fell.

The oils matched the stock market response vis a vis the erroneous Persian Gulf news by leaping up and then falling back again. West Texas closed down US8c at US$56.91/bbl and Brent fell US22c to US$64.61/bbl.

Today

The SPI Overnight closed up 11 points or 0.2%.

All eyes on the Fed tonight, although given all and sundry are arguing that the crucial meeting will be in June, one way or the other, not much in the way of new revelations is expected from the FOMC this time around. Also in the frame will be the first estimate of US March quarter GDP, for which 1.0% growth is the consensus forecast.

Japan is closed today.

On the local stock front we’ll see another handful of resource sector quarterly reports as well as an interim earnings result from BT Investment management ((BTT)) and a quarterly sales report form Wesfarmers ((WES)).

Rudi will appear on Sky Business twice today. First on Market Moves, 5.30-6pm and later, as host, on Your Money, Your Call Equities, 8-9pm.
 

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