The Overnight Report: Lazarus Rises

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By Greg Peel

The Dow closed up 2 points, the S&P closed flat at 1433 and the Nasdaq rose 0.4%.

The world received a bit of a shock yesterday on the release of September trade data from that oft forgotten economy – Japan. The impact of the dispute with China over rocks in the East China Sea was felt, as a Chinese boycott on Japanese goods helped Japanese exports fall 10.3% year on year. On a year to date basis, net Japanese exports are down 14.1% including a 21.1% fall in exports to Europe.

The news was not well received on the London Metals Exchange, which was back in full swing last night after the LME Week disruption. Friday night saw heavy selling in base metals following a suggestion from a PBoC official that Beijing would not be introducing any major stimulus packages anytime soon. Low inflation in China provides room to move, but China's September data dump told a tale of a slowdown that appears to be bottoming out. China's 7.4% September quarter GDP growth was on the money with regard to the 7.5% target set by Beijing at the beginning of the year, hence if China's economy is stabilising, there is little impetus for further significant monetary or fiscal stimulus.

Having fallen 2-3% across the spectrum on Friday, last night the metals were again mostly weaker, with 1-2% falls in lead, nickel and zinc and a 4% slide in tin on increased inventories. Copper and aluminium were slightly weaker. Wall Street would have added to weaker sentiment, given Friday's 200-point Dow fall was being followed up by another 100-point drop by the time the LME closed in the early afternoon New York time.

Wall Street's mood darkened gradually over last week as reasonable early earnings results from the banks gave way to weak numbers from the tech sector, finally culminating in big misses from Dow stalwarts McDonalds and General Electric on Friday. Dour sentiment carried over in Wall Street's morning session last night, as heavy equipment maker and industrial bellwether Caterpillar posted its numbers and lowered its profit outlook, forecasting flat revenues in 2013.

Caterpillar's numbers had been pre-released, so its own share price did not post much of a response – rather investors remained in general selling mode in light of the Dow component's tepid guidance. But just before 2pm, the mood suddenly changed. The buyers came out of the woodwork looking for supposed bargains, with beaten down tech stocks first on the radar. Apple shares have suffered a serious pullback of late on less than abundant sales of its iPhone5, but with the iPad Mini set to be released by week's end buyers took advantage of the correction for America's largest company and pushed Apple up by 4%. Apple's move shot the Nasdaq to a positive close, and helped the S&P close flat on the session. Tech stocks in general followed suit, and ultimately the wider market recovered.

There was some positive news out of Spain, sort of, with Prime Minister Rajoy's party retaining government in his home state of Galicia following a local election. After weeks of rioting, the state election provided a mini-referendum on Rajoy's latest austerity drive. While debate raged as to whether the win would encourage Rajoy not to go for the bail-out, it is more likely Rajoy can feel happier the strict conditions that will inevitably come with a bail-out won't herald his political demise.

All up the US dollar index finished steady at 79.62, with strength in the euro offset by weakness in the yen following Japan's disastrous trade data release. The Aussie is also steady at US$1.0317, while gold clawed back US$5.80 to US$1728.40/oz.

The Keystone pipeline, which pumps oil to Oklahoma's WTI storage tanks from Canada, is expected to restart any moment after a two-day shut-down due to an “anomaly”. That news was enough to send the oils down once more if the news from Japan was not impetus enough. Brent fell US72c to US$109.44/bbl and West Texas, now rolling into the December delivery contract, fell US$1.51 to US$88.93/bbl.

The good news for resource sector investors, however, is that China's spot iron ore price has risen by US$2.20 to US$117.50/t.

The SPI Overnight closed up one point.

Today on the local bourse we'll see quarterly production reports from Aquarius Platinum ((AQP)), Mirabela Nickel ((MBN)), Oil Search ((OSH)) and OZ Minerals ((OZL)) and quarterly traffic stats from Macquarie Atlas ((MQA)).

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