The Overnight Report: Shaking Off The Worries

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By Greg Peel

The Dow rose 81 points or 0.7% while the S&P gained 0.7% to 1319 and the Nasdaq added 1.0%.

Wall Street seems currently determined to re-take the previous February high – now just over 100 Dow points away – as concerns over the triple threats of MENA, Japan and Europe fade into complacency.

The battle continues to rage in Libya, with fortunes seemingly swinging back and forward each day. Ho hum. The Japanese prime minister still describes the situation at Fukushima as critical. Yawn.

Last night Standard & Poor's downgraded the sovereign ratings of both Greece and Portugal again, the latter only five days after the last downgrade. So what? We all know the situation in Europe, and ECB president Jean-Claude Trichet keeps dropping hints he will raise the cash rate next month for the first time since the GFC, so things can't be all that bad.

To top it off, in the wake of FOMC member Charles Plosser's call for a US rate rise sooner than later, last night FOMC member James Bullard suggested the Fed may not be able to hold off to see how all of the above issues play out, and indeed may need to withdraw QE2 before the due-date in June. Such comments would not be made were the Fed members not confident the US economy was recovering sufficiently.

We will no doubt learn more when Ben Bernanke makes a speech next Monday.

If that is the state of play, then Wall Street can feel more confident looking at earnings forecasts for the upcoming quarterly season, which haven't been trimmed, looking at influences such as last night's announced US$1bn share buyback by Dow component Home Depot, and looking at the fact US consumer confidence did not fall as far as one might have expected in this turbulent month of March.

The Conference Board index of consumer confidence fell to 63.4 in March from 72.0 in February marking the biggest decline in over a year. But it's hardly a surprising result, given all that's been going on. Indeed, economists had forecast a fall to 62.2 so this was seen as a good result.

So Wall Street stumbled only slightly on the open before spending the rest of the session quietly gaining. Volume was again light, nevertheless, but not as bad as Monday night. The VIX fell 6.5% last night to just above 18, homing in once more on the pre-crises lows in the 16s in February.

Oil was slightly higher last night, with Brent up US36c to US$115.16/bbl, gold slipped a couple of dollars to US$1417.70/oz, and the US dollar index was steady at 76.18. Attention remains focused on the Aussie, however, which is up another 0.4% to US$1.0294.

Yesterday I commented on traders' observation that there had been a big AUD-EUR buy order in the market helping to push up the Aussie, possibly implying a takeover bid from offshore. The market has thus singled out Woodside ((WPL)) as the likely target, albeit BHP Billiton ((BHP)) is being touted as likely suitor (which belies the currency play).

Base metals in London were relatively positive last night in line with stock markets, with increases of around 1.5%. Copper was nevertheless quiet.

The US Treasury auctioned US$35bn of five-year notes last night and ended up having to pay a lot more than expected. With all the talk of the end of QE2, it was the local market which backed off. Foreign central banks bought 42% compared to a running average of 37%. The benchmark ten-year yield rose five basis points to 3.49%.

The SPI Overnight gained 27 points or 0.6%.

The action might hot up in the US tonight as the private sector unemployment result is delivered ahead of Friday's official figure. There are also now only two sessions to go to quarter's end, and maybe last night's move saw an element of “window dressing”. 

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