The Monday Report (On Tuesday)

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By Greg Peel

"It is a national and pressing necessity for us to formally ask our partners for the activation of the support mechanism, which we jointly created in the European Union," said Greek Prime Minister George Papandreou in a televised address on Friday night, having watched the government’s ten-year bond yield pass 9%.

The inevitable triggering of Greece's rescue package came after EU and IMF officials had gathered for two weeks of negotiation with the Greek government. While the euro responded with a decent bounce to US$1.3364, that time will still be needed before more specific detail of the rescue can be given, suggested German Chancellor Angela Merkel.

So begins yet another period of uncertainty as the most reluctant rescue in financial history is formally nutted out. Ben Bernanke and Hank Paulson saved Bear Stearns in one weekend. The French finance minister noted the aid package could be available by May 9, “after lawmakers approve it”. Will they? It depends on the largesse of respective EU member parliaments.

Either way, many economists are suggesting the 45bn euros earmarked by the EU/IMF will not be enough and that Greece's slide toward default will simply be postponed.

The rescue helped the Dow to a 70 point rise in Friday (S&P up 0.7% to 1217) but it was one piece of local data which sent the indices to their eighth consecutive weekly gain. Economists had expected new home sales to rise 5.5% in March, but instead they rose 26.9% – the biggest gain in 47 years. The extraordinary number – assuming it's accurate – was attributed to the impending end-April expiry of the government's extended tax credit for first home buyers. Earlier it was noted durable goods orders fell 1.3% in March after a 1.1% rise in February, but that was quickly forgotten.

The home sales data were welcome news given earnings report responses for the session were mostly weak. The US dollar dropped 0.4% to 81.35 but only because of the euro bounce. The US ten-year bond yield rose to 3.82% on expectation of a Fed move before too long. Gold returned to favour with a US$16.20 gain to US$1157.20/oz. Base metals were mixed on small moves. The Aussie was steady at US$0.9277.

The SPI Overnight rose 29 points or 0.6%.

Wall Street carried its positive momentum into Monday night's session sending all three indices into new-high territory and the Dow up 54 points before the sellers arrived in the afternoon. The Dow closed unchanged and the S&P was down 0.4% to 1212, weighed down particularly by the financial sector given concerns about the reform bill and the Goldman Sachs case.

Late weakness belied good results and guidance upgrades from Whirlpool and Caterpillar (Dow) while after the bell, Texas Instruments just managed to beat estimates.

Manufacturing in the Texas area was noted to have improved in April with the Dallas Fed index up to 18 from 9 in March. Demand for the auction of Treasury five-year inflation-adjusted bonds was understandably strong as investors sought yield with protection against money printing.

US debt demand played as the flipside to Europe. The Greek bond spread continued to widen on Monday due to comments made by Angela Merkel suggesting Greece will have to show Germany more specific detail of budget cut plans before any loans will be forthcoming in the rescue package. The euro weakened on thew news but recovered toward the end of the session, leaving the US dollar index little changed at 81.32.

Gold lost US$4.50 to US$1153.00/oz after its big move up on Friday while base metals were again mixed on small moves, nickel gaining 1% and aluminium losing 1%. Oil lost US92c to US$84.20/bbl and the Aussie slipped slightly to US$0.9266.

The SPI Overnight fell 10 points, making the net gain 19 points since Friday's close.

Over the weekend details of the Australian super industry reforms were released, with the banning of commissions to financial planners the highlight. These reforms have been well flagged and the wealth sector has priced in expected damage to earnings.

Today in Australia sees the NAB business confidence index for the first quarter along with the PPI. Tomorrow brings the CPI for the first quarter, Thursday brings the Conference Board leading economic indicators and Friday private sector credit and new home sales. These numbers will have to be remarkable for the RBA not to raise next week.

Tonight in the US sees the Case-Shiller house price index, the Conference Board consumer confidence measure and the Richmond Fed manufacturing index. On Wednesday the Fed will make a “rate decision” but while there will be no rate rise, Wall Street will be looking closely for any further qualification to the “exceptionally low/extended period” mantra. Thursday it's the Chicago Fed national activity index and Friday the Chicago Fed purchasing managers' index, along with final Michigan Uni consumer confidence measure for April.

This Friday night also brings the first estimate of US first quarter GDP.

Elsewhere in the world, the RBNZ will make a rate decision on Wednesday and Japan will have a holiday on Thursday before Friday brings a wealth of data releases, including industrial production, unemployment and the CPI. The Bank of Japan will decide to leave rates unchanged.

On the local stock front, there will be another handful of resource sector production reports this week, the highlight being the under-siege Macarthur Coal ((MCC)). ANZ Bank ((ANZ)) will release its interim profit report on Thursday while Macquarie Group ((MQG)) will release its full-year on Friday.

For further global economic release dates and local company events please refer to the FNArena Calendar.

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