The Overnight Report: Last Thursday Regained

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By Greg Peel

The Dow rose 148 points or 1.4% while the S&P gained 1.4% to 1171 and the Nasdaq jumped 2.1%.

After stringing together a couple of rallies post the eurozone rescue package announcement, Wall Street is now back where it was before the big dump on Thursday last. The bulls would have liked to have seen the S&P 500 reconquer its 50-day moving average at 1173, but the mood was nevertheless buoyant. Volume was solid on the NYSE at 1.2bn. The VIX fell another 10% to 25.

It was a steady one-way street last night spurred on by positive economic data both locally and from across the Atlantic. European stock markets had a good day, with London and France up 1% and Germany up 2.4%.

The US trade deficit widened in March to US$40.4bn, up 2.5% from February, to the highest level in 15 months. On face value, this is not a good sign. The US is struggling with ever-widening twin deficits of current account (including the trade balance) and government budget and President Obama wants America to sell more exports to the world while refraining from buying imports, particularly on credit. However, US commentators took this as a great result.

That's because the total volume of trade – adding imports and exports rather than netting them – was at its highest level since October 2008, being the point at which the world plunged into the GFC. Healthy trade numbers imply the US economy is getting back on its feet, and export growth did just pip import growth by 3.2% to 3.1%. Some consolation can also be taken from the fact the trade deficit widened 6.7% from January to February, so the deficit growth trend is declining.

But what America cannot escape is the huge jump in oil imports which contributed to the deficit in March. It's a good economic indicator, but also plainly representative of America's biggest trade problem – its reliance on foreign oil. The bulk of remaining imports was made up of Chinese manufactured goods, which just goes to show that while China maintains an artificially low exchange rate, American consumers will ignore their patriotic duty to buy local. China will, eventually, revalue its currency. But only very slowly.

It may be all well and good for Obama to exhort Americans to help turn around the trade balance but it's a case of pots and kettles. April is usually a month in which the federal budget shows a surplus from annual tax receipts but no – this April the budget showed its highest ever April deficit of US$83bn compared to US$52bn expectations. It was four times higher than last April. The White House warned that deficit for the 2010 fiscal year (ending September) could reach US$1.56trn compared to US$1.42trn last year. And don't forget that the IMF may well end up a major contributor to the eurozone bail-out, and the US contributes 17% of IMF funding.

But Wall Street only saw positives, and there was some good news on the European front as well. The first estimate of March quarter eurozone GDP showed a 0.2% gain over the December quarter and a 0.5% gain over last March, compared to expectations of 0.1% and 0.4%. In the meantime, Spain announced a plan to cut its deficit and Portugal managed to sell US$1bn worth of ten-year bonds without much trouble.

While the GDP result was a slight win, the fact remains growth is still minimal and it's within this, the June quarter, that the manure really hit the rotating cooling device in the eurozone.

So the euro failed to rally off the news, and indeed slipped again slightly. The pound also weakened following news from the Bank of England that its cash rate will not be raised anytime soon and that purchases of government bonds (quantitative easing) could recommence anytime if necessary. The end result was a dollar index up another 0.3% to 84.90.

Commodity markets are now suffering somewhat of a vacuum as speculative funds turn their attention to gold and silver and not economically sensitive consumables. Investment in the gold ETFs has surged this past week and gold added another US$5.70 into blue sky last night to US$1237.10/oz. Silver jumped another 1%.

Metals in London were mixed on lack of conviction while oil dropped again, falling 1% or US72c to US$75.65/bbl as the weekly inventory numbers showed a larger than expected build. While commodities are seeing potential constraint from the stronger greenback, it's really not a currency issue right now, except for gold.

And once again it is no surprise last night's US$24bn auction of US Treasury ten-year notes was well subscribed. Where else does one turn to in the sovereign debt market? The settlement price rendered a yield of 3.548% which is the lowest rate the US government has had to pay this year. Foreign central banks bought 42% compared to the running average of 40%.

The Aussie was steady last night at US$0.8939.

The SPI Overnight gained 59 points or 1.3%.

Its employment data day in Australia today, while the AMP ((AMP)) holds its AGM with possible takeover news and Optus owner Singtel ((SGT)) provides its full-year result.

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