The Overnight Report: Low Volumes, Higher Prices

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By Rudi Filapek-Vandyck

The S&P 500 rose 0.6% overnight, with the Dow up 0.9% and the NASDAQ up 1.0%.

The absence of major economic news saw overall volumes drop in US markets on Monday but this did not deter the market bulls who used a surprise dividend announcement by Intel to move back in growth oriented sectors, pushing the Dow Industrials ever so closer to the magical 12,000. Financials remained out of favour, but copper-leveraged stocks, including BHP Billiton ((BHP)) and Rio Tinto (RIO)) saw buying interest return with a vengeance.

More M&A announcements also supported overall positive sentiment. Packaging products company Rock-Tenn announced it plans to buy Smurfit-Stone Container Corp while Novartis agreed to acquire Genoptix.

A mixed PMI release in Germany kept the lid on European equities, with US markets outperforming in the session. The UK FTSE gained 0.8% but the German Dax only managed a gain of 0.1%. Investors largely ignored news about a suicide bomb attack in Russia that killed 35 people at a Moscow airport. Russian shares dived 1.5% on the news.

Chipmaker Intel annouced a lift in shareholder dividends by 15% and the market responded by buying technology stocks, with IBM reaching all-time highs. US treasuries had a bit of an off-day with investors believed to square up positions ahead of the Federal Reserve meeting and upcoming bond auctions. Treasury will sell US$35 billion of two-year notes on Tuesday, US$35 billion of five-year notes on Wednesday and US$29 billion of seven-year notes on Thursday. US 2yr yields were steady near 0.62% and US 10yr yields were steady at 3.41%.

On FX markets, the US dollar continued its downward path, allowing the euro to recover from initial retreat. The euro rose from lows near US$1.3540 to US$1.3685 before easing to levels near US$1.3635 in late US trade. The Aussie dollar rose from lows around US98.70c to US100.20, before easing to US99.85c in late US trade, adding another failed attempt at keeping up with parity. The Japanese yen rose from 82.90 yen per US dollar to near JPY82.30, before easing to JPY82.50 in late US trade.

While copper's advance on the LME proved a major inspiration to buy into mining stocks, base metal prices overall were rather mixed on the day. Copper rose 0.9% but nickel was largely flat while other metals experienced general weakness. Lead outperformed to the downside losing 1.4%. Gold used the USD weakness to recover, while some commentators are also mentioning "bargain hunting" by investors. The Comex gold futures price rose by US$3.50 an ounce to US$1,344.50.

US crude oil prices equally failed to keep pace with the apparent optimism in equity markets. Monday (Tuesday morning for people living in Sydney) marked the fifth straight session of losses for crude oil. The Nymex crude oil contract fell by US$1.24 to US$87.87 a barrel. London Brent crude fell by US99c to US$96.61 a barrel.

Agricultural commodities were equally mixed. Cocoa soared 4% to a one-year high as the president-elect of the Ivory Coast, the world's largest producer, banned exports for a month in an attempt to cut off funds from the country's incumbent leader who thus far has refused to step aside. Wheat gained 1.3%, rising to its highest level since August, as prices were boosted by solid demand and declines in global supply. Other agricultural commodities were weaker, with soybeans down 0.5%, corn 0.3% lower, and sugar dipping 0.1%.

The Australian SPI 200 March 2011 futures contract suggests a more subdued opening in the local market today. SPI Futures are up by 9 points or 0.2% to 4779.

All eyes will be on the release of CPI data in Australia today, with the release of PPI data yesterday suggesting a rather subdued result. Market consensus sits at 0.7% but economists seem to be of the view the bias is to the downside. Also, the IMF will release its latest global forecasts tonight, and has indicated that it has raised its 2011 world growth forecast to just under 4.75%, from October’s estimate of 4.2%. Today's calendar further promises central bank meetings in Japan and India, UK Q4 GDP, and US house price and consumer confidence releases.

Greg Peel will return after Australia Day.

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