The Overnight Report: Banks And Techs Leading The Obama Bounce

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

Hillary Clinton is about to be confirmed as President Obama’s Secretary of State. Tim Geithner may yet receive enough votes to play a leading crisis-solving role at Treasury (still not 100% certain as the Senate is grappling with his chequered tax history) and a hedge fund based in Texas has been uncovered as the next Ponzi scheme scandal.

But Wall Street rallied like there was no tomorrow, making up for the heavy losses endured the previous day. Is that much-talked about Obama rally finally taking form? Let’s call it a technical bounce, a relief rally, or maybe an overdue return of some investor optimism. A phrase coined repeatedly on financial television overnight was: “yesterday had been overdone”. Another one was: “at these levels, banks simply represent long term value”.

The sell-down yesterday, which marked the worst presidential inauguration day in history, had pulled US equity indices to their lowest levels in two months. One day later, there was simply no stopping the market.

US shares started on a positive note, retreated after two hours trading, but then the market just kept on going up. Banks rose by 10%, 20%, 30% and more. Technology stocks had a good day as well as a follow-through reaction to the surprisingly upbeat comments delivered by management at IBM after the close of trade the previous day. IBM not only beat the street with its Q4 numbers, it also gave new guidance for the quarters ahead that was well above market forecasts.

At the closing bell, the Standard & Poor’s 500 Index had gained 4.4% to 840.24. Bloomberg reports today’s performance marks the index’s steepest gain since December 16. The Dow Jones Industrial Average added 279.01 points, or 3.5%, to 8,228.1. The Nasdaq gained more than 4.5%. The Russell 2000 Index, barometer for small caps in the US, climbed 5.3%.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, retreated 18% to 46.37.

After today’s gains, the S&P 500 is still down a little less than 7% so far this month/year and this means January 2009 is still not that far behind last year’s performance when the index lost 9.8% over the first 13 trading days. (Just to keep a perspective on things).

Currency markets were volatile, with investor optimism seemingly rubbing off on the US dollar too. Although the surge proved only temporary, most commodities took a beating nevertheless. Base metals looked like they’d visited the local butcher, with multi-percentage losses the norm.

One interesting observation currently stands out with regards to currencies: if one takes guidance from the most bearish predictions for the British Pound, the euro and the US dollar, the world could be experiencing a unique convergence as the GBP is seen as heading for parity with the euro by some (UK economy likely to turn out the worst of all), while others believe the euro is heading for parity against the greenback (as Europe will be longer in crisis than the US).

It’s an interesting thought to contemplate.

Crude oil took its guidance from the US equity market yesterday and surged whole the way to US$44 per barrel (WTI). Some chartists will tell you crude oil futures found support at technical support. Those who’ve read our technical story by Barclays from yesterday will know crude oil has now broken out its upper level of a narrow trading range. Further fuelling optimism among the market bulls is the fact the contango in the oil market is reducing, and rapidly so. Could this be the beginning of a new upswing?

Similarly, the price of gold has held up very well, despite a return of US dollar strength. Same story  for oil: could this (finally) be the beginning of that long anticipated surge? In the face of a swift return of investor optimism to the US share market, gold posted minor losses only.

The Aussie dollar managed an eye-catching return to US66c from as low as US64c the prior day.

Despite carnage on metals markets overnight, shares of BHP Billiton ((BHP)) and Rio Tinto ((RIO)) performed very well in the US. The SPI futures indicate Australian shares will have their own day in the sun today.

Today will see the release of a handful key economic data, including retail sales and GDP, in China. It is well possible that investors in Australia will simply ignore them and worry about it tomorrow (last day before the long Australia Day weekend).

After hours, Apple posted its best quarterly sales report ever.

European shares closed largely lower.

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