The Overnight Report: All The Way With 13K

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By Greg Peel

The Dow closed up 23 points or 0.3% while the S&P gained 0.3% to 1372 and the Nasdaq added 0.7%.

The irony perhaps is that on the night the Dow finally scrapes over 13,000, for once US economic data releases were mixed. New durable goods orders fell 4.0% in January when economists had expected a 1.3% fall. The fall was widespread across sectors and not simply a result of volatility created by lumpy aircraft orders. However, big gains in the previous two months have orders up 8.8% over 12 months. The Richmond Fed manufacturing index, nevertheless, has risen to 20 this month from 12 last month. Given this is a zero-neutral, rate of expansion index, 20 represents significant acceleration.

The Case-Shiller 20-city house price index fell to a new low in December, marking a 4.0% annual decline. The reading is the lowest since the US housing market peaked in 2006 and indicates just what impact ongoing foreclosures are having on the US housing market. Yet the Conference Board's monthly measure of consumer confidence blew Wall Street away with a gain to 70.8 this month from 61.5 in January when economists had expected 64.5.

As was the case with last week's fortnightly Michigan Uni survey, the expectation is that these high numbers – and that's the highest in twelve months for the CB measure – will become peaks now that the price of gasoline has risen into demand destruction territory.

On that note, however, oil continued to pullback last night after its strong run. Brent fell US$2.02 to US$121.85/bbl and West Texas fell US$1.80 to US$106.76/bbl. Perhaps it was oil that provided the “energy” for the final Dow assault.

Ever so quietly, Portugal was granted a tick of approval from the troika last night on its budget tightening progress and thus was given the green light for its next E14bn tranche of the 2011 E78bn bail-out fund. When ever Greece got to this point over the past two years, it would fail the test and usher in frustrating bouts of market volatility on default speculation. Is Portugal well and truly on a sustainable path now? See today's article: Should We Now Worry About Portugal?

Not quite so quietly, Ireland announced last night that it would hold a referendum on the tighter fiscal union agreed on in principal last month by all bar two of the 27 EU members. Ireland was not one of the two, but the government decided it was a question for the people. The Irish do not have a good track record of succumbing in these referenda, and that caused ripples of concern on Wall Street last night.

But overriding all European news is discussion around the LTRO. Tonight the ECB will undergo its second round of Long Term Refinancing Operations in which it opens the window to European banks for three-year loans at 1% interest. At the first LTRO in December, more than 500 banks took E489bn in total. The problem is how to interpret this next round.

If the banks take a lot less this time, one could argue they must now be in a healthier position, which is good. But then we don't want them to shy away and end up in trouble again, for that would be bad. If they take more this time around, that might mean they're not improving, which is bad, but then why not just take the cheap money anyway for commercial purposes? That would seem okay.

So whatever happens tonight, the response will be interesting to note. Meanwhile, the euro held up last night so the US dollar index fell 0.4%. The dollar fall, and the promise of another flood of central bank money printing for the LTRO, had gold up US$17.90 to US$1785.30/oz. But who lit a bomb under silver? Having wallowed and underperformed gold for some months now, silver last night suddenly decided to jump 5% to US$37.02/oz.

The move was not matched by base metals, which were again fairly steady. And the Aussie was also steady at US$107.66.

The SPI Overnight gained 11 points or 0.3%.

So is it onward, ever upward, now that the Dow has passed the psychological 13,000 mark? That's the hope of many. Yet 13,005 is not what you'd yet call convincing and really all we've done is banged around the target for the last several sessions. We'll have to wait and see.

The Australian corporate earnings season ends today. Woohoo!. Apart from Woolies ((WOW)), which reports tomorrow. Booo. WorleyParsons ((WOR)) will be today's highlight.

Today also sees local retail sales, new home sales and private sector credit data for January, along with December quarter construction work done, which is influential for next week's GDP result.

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