The Overnight Report: Salute The Sugar Daddy

This story features MACQUARIE GROUP LIMITED. For more info SHARE ANALYSIS: MQG

By Greg Peel

The Dow rose 113 points or 0.9% while the S&P gained 0.7% to 1400 and the Nasdaq added 0.7%.

Yes, you can have your cake and eat it too. While it has appeared Wall Street has wanted to rally this month the short term trader-dominated market has been held back by fears – yes fears – that the US economy has been looking too good. So good that QE3 should be dead and buried. And every time Fed chairman Ben Bernanke alludes to the modest strength of the recovery, and does not mention further stimulus, down we go. Despite the fact it has always been painfully obvious to anyone with even half a brain that QE3 would be whipped out the minute Europe imploded, Bernanke's reassurance at Wednesday night's press conference was candy to a baby.

So now we have a US economy that is not only growing modestly, according to the central bank, but it has a big insurance policy on it. Knowing that, there seems little reason not to be “risk on”.

In the real world, US corporate earnings have been very positive. Or at least positive compared to much reduced expectations. Half of the S&P 500 companies have now reported, and the score card reads 72% beats, 12% in-lines and 16% misses. Moreover, next quarter guidance has also leaned to the upside when the past two quarters have featured guidance disappointment. What we have is rally potential.

Yet to rally we must be assured first that China will not slow down too much and that Europe will not implode. On that front, Beijing stands ready with more room for policy easing and ECB president Mario Draghi has become euro-Ben, in sharp contrast to his predecessor. It is now assumed the ECB will do whatever it has to do, stimulus-wise. And just as an added extra, the Bank of Japan is widely expected to announce a new round of quantitative easing at its meeting today, taking stimulus from Y5 trillion to Y10 trillion.

Did you ever wish you could play Monopoly with an unlimited bank for all?

The correction that many wanted to see now seems like a faded memory as the combination of global QE, positive US earnings (with Apple the pin-up), decent enough US economic data, and – let's face it – a world-weariness of feeling nervous about investment, pushes stocks higher once more. But it's still all about traders, and computers, and not about real investors. If they come back, look out. But they haven't done so in three years.

Last night's session on Wall Street gained momentum as the day wore on. The morning release of March pending home sales provided added impetus, with pending sales rising a better than expected 4.1%. Year on year they are up 12.8%. Funny that Wednesday night's absolute Barry of an existing home sales number was ignored at the time, but pending sales turn into real sales in one to two months time and that's what has Wall Street pumped.

It was nevertheless when the S&P 500 hit the technical level of 1390 that the computers shifted into a new gear and chased each other higher, with 1400 in mind as the place to stop. And so it did – right smack on it. At 13,204 the Dow is now just shy of the 13,264 closing high set in March. At the current rate that should be surpassed tonight.

Across other markets it was all just a QE3 trade. The US dollar index would have been lower if not for the yen expectations, so it was only off a tad to 78.96 but gold awoke from its slumber to jump $12.60 to US$1656.40/oz. The Aussie is up 0.4% to US$1.0395 despite next week's pending RBA rate cut.

Just on that score, there is no way on God's green earth the RBA will cut by 50bps in one hit.

Base metals all had a shot of Uncle Ben's adrenalin in rising 1% plus and 3.5% for nickel. The stuck-in-a-range oils were each up less than a dollar. US bonds should rise in yield as stocks rise (sell bonds to buy stocks) but not when QE is in the frame. The ten-year yield was down 3bps last night to 1.96%.

The ASX 200 was back to its old tricks of losing interest steadily during the day yesterday, but the SPI Overnight is up 18 points or 0.4%.

We're all set for Macquarie Group's ((MQG)) full-year earnings report today and then tonight sees the first estimate of the US March quarter GDP. Current consensus is for 2.5% growth.

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