The Overnight Report: Wall Street Back In Business

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 By Greg Peel

The Dow rose 122 points or 1.1% while the S&P rose 1.3% to 1206 and the Nasdaq jumped 1.6%.

The Greek junk scare and subsequent downgrades in Iberia has forced EU leaders to scramble into action, specifically to prevent a necessary restructuring of Greek debt and consequent credit spread blow-outs across the eurozone. At last count, talk was now of a 100-120bn euro rescue package over three years, potentially front-loaded to take the original pledge of 45bn euros in the first year up to 65bn euro.

Final details are yet to emerge and EU leaders are no doubt working around the clock, but a major barrier was potentially removed last night when the leader of Germany's Social Democrat opposition declared his support for a rescue and cleared the way for requisite legislation to move swiftly through the German parliament. With France having declared full support, a rejection of the bill in the Bundestag is the remaining potential stumbling block. Failure to coordinate a rescue prior to the May rollover of 8.5bn euros of Greek debt could have set in train a European implosion.

Social Democrat support is nevertheless not without condition, being that German commercial banks must also contribute to Germany's proportion of the package. Clearly commercial banks stand to be losers from any rescue failure given the complex web of interbank loans across the eurozone, and given the general funding cost blow-out a Greek restructuring would spark.

There is as yet no news on German commercial bank intentions, but the German government is planning to put the rescue bill to parliament on Monday. One presumes there will be some heated meetings over the weekend. In the meantime, Germany has still made its support dependent upon specific plans from Greece for extended austerity measures. Greece must come to the party too, and all the while the protest marches are building in Athens.

Suffice to say, Wall Street was happy to declare the Greek scare over last night. Mind you, this is the third time it has declared the scare over. The first came in February when the EU made a vague suggestion of support, the second earlier this month when that vague suggestion became a joint EU-IMF 45bn euro injection, and now the third on the back of this more determined 100-120bn euro package. Will there be a fourth time? All the while Greek bond yields have been blowing out, eventually to junk status. They came back in last night, but the ten-year yield is still over 10%.

Heartened by the latest developments, Wall Street took off from the opening bell. Momentum waned by the end of the session but it was enough to get the S&P 500 back over 1200. The Dow has recovered all bar 38 points from its earlier high before the Greek junk hiccup.

Assisting the relief was the weekly new jobless claim number. It fell by 11,000 to an adjusted 448,000 to be 28% down over twelve months. Economists suggest the number must fall below 400,000 before a healthy new hiring trend can be declared.

The Chicago Fed national activity index also showed a positive result. This index is zero-neutral and tends to fluctuate between +2 and -2 with falls below -3 seen in recessions. The index improved from -0.44 in February to -0.07 in March.

But the real driver last night was a solid round of earnings reports – too many to list and no Dow components among them. Suffice to say the bulls cite extended low rates and positive earnings recovery as a reason the 80% rally from the bottom is only the first phase. The bulls are spelling bounce with a capital V.

The euro managed to stabilise last night but has not rallied, albeit the US dollar index dipped to 82.04. European stock markets were relatively strong last night but given every man and his dog is short the euro, one might have expected a more enthusiastic rebound if rescue relief is justified.

Gold is also playing a wary game, managing to rise another US$2.20 to US$1167.20/oz on the slightly weaker dollar but not yet prepared to sell-off on diminished sovereign risk.

London metals traders nevertheless cited lingering European jitters, fears surrounding Chinese tightening measures and technical-based selling for some late dives in metal prices last night. Copper, lead, nickel and zinc all fell 1-2%.

It was a different story for oil however, which surged 2.3% or US$1.95 to US$85.17/bbl. While concerns may have eased over Greece, far away from sunny Athens a sunken oil rig is spewing forth 5000 barrels per day of crude into the Gulf of Mexico and efforts to cap the spill have so far failed. A huge slick is now drifting towards the Mississippi delta, threatening an environmental disaster to match Exxon-Valdez.

The Nymex was not worried about greasy sea-birds however, but the fact that the slick is also drifting into shipping lanes, threatening to shut down tanker traffic, and that calls have been made to the government to shut down all offshore drilling until the reasons for the oil rig explosion are properly understood. (Note that BHP Billiton ((BHP)) operates in the Gulf).

Dow component Chevron will report its earnings before the opening bell tonight.

The Aussie ticked up slightly to US$0.9271 to be basically back where it was before the latest round of Greek fears, and we now have about a 50/50 split in opinion as to whether the RBA will raise next Tuesday or not.

The SPI Overnight jumped 39 points or 0.8%, once again failing to match Wall Street enthusiasm.

Tonight in the US sees the first estimate of March quarter GDP. Consensus suggests growth of 3.4% – down from 5.6% recorded in the December quarter. While this appears to be a slowing, economists note December was very much driven by inventory restocking which will have begun to wane in March. This time growth might be lower but it will be more broad-based, economists suggest, and likely feature notable improvement in consumer spending.

Whatever the number is, experience suggests that by the time it has been revised twice in subsequent months it could well look very different.

On the local front, new home sales and private sector credit releases today will add more fuel to the rate debate fire, while all Australians will be braced for the results of the Henry tax review on Sunday.

There are several resource sector production reports out today, along with March quarter sales results from Woolworths ((WOW)) and Macquarie Group's ((MQG)) full-year profit result.

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