The Overnight Report: Summertime Blues

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Greg Peel

The Dow closed down 39 points or 0.4% while the S&P lost 0.4% to 1067 and the Nasdaq fell 0.9%.

Wall Street tried to stage a rally from the opening bell and the Dow was up 91 points in early trade. M&A activity provided some impetus, with Hewlett Packard (Dow) gazumping rival Dell in the bid for a software company, British bank HSBC putting in an offer for South Africa's biggest financial services company, and Potash announcing it had received all sorts of expressions of interest to counter BHP Billiton's ((BHP)) hostile bid.

Interested parties are rumoured to include Brazil's Vale and China's Sinochem, although no formal bid has been made at this stage. It appears, nevertheless, Potash Corp is prepared to put itself up for auction.

And Wall Street was also a-buzz with the rumours any one of SAB Miller or Asahi might be readying for a swing at Foster's ((FGL)) beer business.

But early interest gave way to later indifference as economic concerns and low bond yields weighed on Wall Street. It was one of the lowest volume days of 2010, and traders suggest the next two weeks – officially the last of the summer ahead of the Labor Day weekend – will see minimal activity.

The Chicago Fed announced its national activity index measured 0.00 this month which just about sums things up. The result is actually an increase from last month's reading of minus 0.7, but the three-month average has fallen from plus 0.12 to minus 0.17 to indicate the underlying trend.

There was a similar result in Europe, with the eurozone's composite industry PMI ticking down from 56.7 to a lower than expected 56.1. The indication here is that austerity measures are beginning to bite.

The PMI was enough to send the euro lower against the US dollar, and the dollar also rose against the yen when a meeting of officials in Tokyo failed to result in any announcement on anticipated currency intervention. The dollar index ticked up to 83.23.

The Aussie fell early yesterday in local trade as a response to the hung parliament, but quickly recovered. Since the close in New York on Friday it is down 0.3 of a cent at US$89.10.

There was much anticipation the local stock market would take a tumble yesterday given the uncertainty of a hung parliament, but it was not to be. The market is still holding out some hope of a Coalition victory, and thus no MRRT, but as the day progressed hopes began to fade. It looks like Labor might take the seat in Tasmania first assumed to be one won by an independent, and the defining seat of Hasluck is still very much in the balance.

If there is one thing we have learned from the close election it is the shocking revelation that real politicians do actually exist in Australia. Independent Tony Windsor – seemingly the spokesman for the three ex-National independents – oozes statesmanship and makes the leading protagonists look like a bunch of Big Brother housemates. A minority government may just be the catalyst needed to halt the relentless dumbing-down of the Australian parliament, whichever side takes government.

It must also be noted that the UK has been through the same experience, and that news of the hung parliament in Westminster initially saw the pound and FTSE weaken. But that minority government is now seen to be working well. And has been oft noted these last few days, there are plenty of successful minority governments around the globe.

Gold fell US$2.10 to U$1225.90/oz on the US dollar's rise last night, and base metals went nowhere. Oil fell another US73c to US$73.10/oz despite the stirring of a new hurricane threat in the Atlantic. One presumes oil is simply tracing out its rigid 2010 script – down to 70, up to 80, down to 70…

The SPI Overnight lost 19 points or 0.4%.

It's a big results day in Australia today.

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