The Overnight Report: Looking Wobbly

This story features NATIONAL AUSTRALIA BANK LIMITED. For more info SHARE ANALYSIS: NAB

By Greg Peel

The Dow closed down 38 points or 0.3% while the S&P lost 0.1% to 1404 and the Nasdaq was flat.

There has been no, and nor is there likely to be, any fresh news regarding European stimulus to latch onto while northerners soak up the sun. The market is currently reminiscent of an artist's model, poised with an arm upraised and very quickly getting weary in that position. There was one frustrating piece of news out of Europe last night nevertheless, that being another lawsuit has been filed in Germany challenging the legitimacy of the ESM. The previous challenge is due to be decided upon, and expected to be dismissed, next month. This new challenge may just hold up proceedings further.

Italy also auctioned E8bn of 12-month bills last night and achieved a rate of 2.77%, slightly up from last month's 2.70%. While it is disappointing that Italy's borrowing costs are still increasing, at least this auction received more bids than the last one. The Italian government has also insisted it will not be needing a bail-out, which ensures all focus remains on Spain. Meanwhile, Germany auctioned E4bn of six-month bills for a rate of negative 0.05%, "down" from negative 0.03% last month.

A culmination of more euro-frustration, and other news, saw the Dow sell off early to be down 95 points by late morning.

Firstly, in other news, Wall Street closed on Friday with anticipation built in of Chinese monetary policy action over the weekend. The week's monthly data from China had been poor, culminating in a weak trade result. Such data releases have prompted action from Beijing over weekends in the past, but not this time. We note, however, that in July Beijing surprised by acting ahead of the data release rather than after it. The Chinese stock market was weak in yesterday's session due to the lack of policy response.

Secondly, yesterday Japan announced a first estimate June quarter GDP of 1.4%, well down on the 2.7% consensus forecast and a long way below the March quarter's 5.5% growth. Japan's economy has been boosted in past quarters by the post-tsunami rebuilding program, but it seems the Japanese economy has now settled back to match general global weakness.

Finally, US presidential candidate Mitt Romney has announced Tea Party pin-up and avowed “fiscal hawk” Paul Ryan as his running mate. This decision has ruffled even the staunch capitalists on Wall Street, who while railing against Obama's socialist spending packages and tax cut policies, are not sure severe spending cuts, which Ryan endorses, are a sensible idea at this stage either. One need only look at Europe's struggle with austerity, and its flip back to promoting growth incentives (if they ever happen).

So on a quiet day there was still much to digest, but ultimately there are buyers on Wall Street ready to pick up stock on dips. Tech stocks led the indices back up to less of a drop.

The US dollar index slipped a little last night to 82.43, but when two of world's biggest commodity importers announce weak economic data within days of each other, metal markets are likely to suffer. Anticipation of stimulus has been waning as base metals all drifted lower again last night by a percent or so. Given China and Japan are Australia's two biggest trading partners the Aussie has lost some ground, down half a cent to US$1.0519.

Oil is marching to its own drum nevertheless, with an Israeli politician last night heightening fears of possible military intervention in Iran. The world should admit diplomatic efforts with regard to Iran's nuclear program have failed, he suggested, and that Iran should not be given undue time. Brent rose US65c to US$113.60/bbl, while West Texas was flat at US$92.84/bbl.

Momentum in the gold market, as is the case in the stock market, also appears to have subsided on a lack of news. Gold fell US$10.70 to US$1609.80/oz last night.

The SPI Overnight was up 8 points or 0.2%.

The first estimate of eurozone June quarter GDP will be released tonight, while retail sales data in the US will be closely watched. Beforehand, NAB will today release its local July business confidence survey.

Around the same time, the bank ((NAB)) will be providing a quarterly update amidst raft of company earnings reports. It could be a day for Australia's youth today given that among other releases, reports will cover cars, condoms and pizza.

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