The Overnight Report: Wall Street Doubles Up

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By Greg Peel

The Dow fell 5 points while the S&P closed up 0.2% to 1332 and the Nasdaq added 0.3%.

The news out of China yesterday, if accurate, was well received in all quarters. China's trade surplus fell to US$6.5bn in January from US$13.1bn in December to mark its lowest level since April last year. Chinese exports rose 38% over the previous January which is healthy for the Chinese economy but it was nicely balanced by a 51% increase in imports.

Last decade, China's economy was all about exporting undervalued goods to the world supported by a pegged currency and lending back the receipts mostly to the US, thus exacerbating global imbalance. But now China's domestic economy is on the move, providing receipts to China's trading partners and correcting that imbalance.

The two biggest imports were petroleum and iron ore, with copper not far behind. Rising commodity prices are clearly serving to bring down the Chinese surplus but Beijing will still be happy given the extent of surplus already held and the apparent strength in the domestic economy. America will be happy because it is selling goods to China – from fast foods to iThings and cars – while Australia is selling raw materials. Everybody wins.

The news was not so pleasing in Europe overnight, however. Eurozone finance ministers again met in Brussels in their ongoing attempts to nut out a more formal plan for addressing financial crises in the zone both current and future. Unsurprisingly there are ongoing disagreements amongst members who are split over calls for further injections of funds and more severe reductions in debt.

The feeling is that Europe is sliding inevitably towards its first default if debt restructuring in the likes of Greece and Portugal is not quickly forced. This is exactly what we were all worrying about this time last year. Portuguese debt continues to blow out in yield and over in Ireland the opposition party – which is all but guaranteed to assume government shortly – has pledged to force haircuts on the creditors of troubled Irish banks. Meanwhile in Germany, the distressed West LB Bank which required government support soon after the GFC, has announced another round of asset sales in order to stay afloat.

None of which engenders much confidence in an improving Europe at a time when North Africa and the Middle East continue to see rolling protests which suggest an uneasy transition into who knows what. Bahrain has now joined in with Algeria and Yemen in mounting Egyptian style people power movements.

Concern over Europe sent the euro lower last night and pushed the US dollar index slightly higher to 78.60. But commodity prices are no longer tethered to the greenback (conversely) and base metal prices shot up on the solid Chinese import numbers. Increases of around 2% across the spectrum saw copper easily reclaim the US$10,000/t mark.

Growing Middle Eastern tension has seen oil rising steadily, and last night Brent crude jumped US$2.14 to US$103.08/bbl. West Texas actually fell US77c to US$84.81/bbl but the world is no longer looking at the parochial WTI as a relevant global indicator*. 

It was strength in the oil and material stocks on Wall Street which saved the indices from earlier weakness, on a day when President Obama tabled his new austerity budget, and ensured a relatively flat close.

The S&P 500 may have only risen three points last night, but it crossed 1332. We recall that the GFC low marked in March 2009 was 666. Yes – the US stock market has doubled.

The Aussie is still hovering above parity at US$1.0031 while gold continues its consolidation, rising US$6.20 to US$1362.50/oz.

The SPI Overnight was up 7 points following on from yesterday's surge on Mubarak's departure and the Chinese data.

Chinese inflation data is due to be released today which will keep the world on edge over Beijing's tightening efforts. In Australia the minutes of the last RBA meeting will be released.

On the local result season front today's report highlights include AXA Asia-Pac ((AXA)), Brambles ((BXB)) and Foster's ((FGL)) along with a quarterly update from Westpac ((WBC)).

* Look out today for our story “Death in West Texas” which explains the reasons behind WTI's fall into global irrelevance. The FNArena website will shortly publish overnight Brent crude prices in the price table.

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