The Overnight Report: Back To Business

This story features SANTOS LIMITED. For more info SHARE ANALYSIS: STO

By Greg Peel

The Dow closed up 70 points or 0.4% while the S&P gained 0.8% as the Nasdaq shot up 1.5%.

Stabilising

It was another strong session on Bridge Street yesterday but not the one way street, step-jump adjustment type of session we’d seen in the previous two. We might thus assume Tuesday and Wednesday represented the removal of Greece risk, with a bit of comfort from Chinese market stability thrown in, while yesterday represented more “normal” attempts by investors to reposition.

The ASX200 did rally another 55 points to 11am towards the 5700 mark but finally the sellers emerged at this point, having stood aside for two days. No doubt short-covering played some part in the two-day run, given the Australian market was showing above average short positioning the week before.

It was a mixed bag yesterday among sectors, further suggesting we’re back to picking themes rather than simple index trading on global events. The banks and telco led the way, while energy bore the brunt of the fall in oil prices.

If we really can put Greece and China to bed now, at least for the time being, the market will be able to reserve its full attention for six-monthly earnings results, which begin to flow next month.

The Aussie story is an interesting one at present, given the sudden slap down into the 73s the currency saw on Wednesday night. This was triggered by a surprise rate cut from the Bank of Canada, on a “guilt by association” basis. Like Australia’s, Canada’s commodity-dependent economy is struggling to transition away from resource sector dependence, and more so if we consider the BoC’s 25 basis point cut took Canada’s cash rate down to only 0.5%.

The implication form the Aussie plunge is that the RBA will be forced to follow suit, but last night the Aussie regained much of Wednesday night’s loss with a 0.5% rise back to US$0.7413 this morning, despite a stronger greenback.

Earnings Focus

We can also argue that the Australian market did not need to go on with it as vigorously yesterday following the vote in the Greek parliament, given a “yes” result was anticipated in the previous two days of rallies. It’s now up to 18 other eurozone parliaments to approve the new deal, and while there remain dissenters, it is likely the zone will close ranks around Germany.

The highlight of last night’s ECB policy meeting was confirmation the central bank will indeed extend its emergency funding to Greek banks, following the positive vote in parliament, such that they should be able to reopen for business on Monday.

The main European stock markets still had a bit of Greek relief left in them last night, having been most damaged by the uncertainty of the last few weeks. The German and French markets both added another 1.5%. Wall Street similarly spiked up on the open, but as was the case downunder, the sellers quickly emerged. Thereafter, it was all about corporate earnings, economic data and Janet Yellen.

The pullback from the open soon swung around to a slow graft north once more as a stunning result from Netflix helped drive the Nasdaq to a new all-time high. The video streaming service is another of those New Media businesses analysts argue staunchly about as to whether they will ever make any money – Facebook and Twitter being other examples – but Netflix silenced the critics last night with an 18% share price surge. A not so well received result from Goldman Sachs dragged on the Dow, while the S&P500 was balanced out with positive results from the likes of Citigroup and EBay.

After the bell, Google posted a strong beat and is currently up 11% in the aftermarket.

On the economic front, the US housing sentiment index ticked up to 60. This is in line with forecasts, but does represent the highest level of confidence in ten years. A sharp drop in weekly new jobless claims was timely given Yellen’s grilling by the Senate banking committee, although the Philly Fed activity index disappointed with a fall to 5.7 from 15.2. The stronger dollar was blamed.

On Capitol Hill, Yellen again said nothing new but did point out that while there is a risk of raising too early, there is also a risk of raising too late. The Fed’s 2% inflation target is very much in focus, and tonight sees the US June CPI result.

The building risk of a September rate hike continues to push the greenback higher. The US dollar index is up 0.5% at 97.67. The US ten-year yield remained steady at 2.35%.

Commodities

The slide in oil prices continued last night as oil traders turned attention to Yellen’s insistence in a rate hike this year and the implications for the US dollar. But while West Texas fell US65c to US$50.97/bbl, Brent’s expiring August delivery contract rose slightly on news a power outage shut down the UK’s largest oil field. The new September contract closed down US7c at US$57.05/bbl.

Activity on the LME has very much quietened down after the Greece brouhaha and wild times in China, culminating in what appeared better than expected Chinese data this week. On low volumes, aluminium and copper went to sleep, zinc and lead fell half to one percent but nickel rose 1% and tin jumped 3%.

Iron ore fell US10c to US$50.00/t.

Gold continues to slip-slide away on the stronger dollar and it’s down US$4.30 to US$1144.60/oz.

Today

The SPI Overnight closed up 7 points.

After a wild week, it might be nice in the ongoing east coast cold and wet (watch out WA, you’re about to cop it too) just to find a cosy restaurant for a steak and a red this afternoon. Maybe two reds.

Tonight sees inflation data in the US.

On the local stock front, Santos ((STO)) will release its quarterly production report.
 

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