The Overnight Report: The Overhanging Cliff

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By Greg Peel

The Dow closed up 26 points, or 0.2%, while the S&P gained 0.3% to 1412 and the Nasdaq added 0.2%.

After a week in which weaker than expected earnings reports threatened to derail Wall Street's solid run to date in 2012, last night's session opened with a 70 point gain in the Dow on the back of seemingly positive economic data.

After falling 13.1% in August, US new durable goods orders rose 9.9% in September to mark the biggest gain in two and a half years, exceeding expectations of an 8.3% lift. After a sharp decline in August, pending home sales rose 0.3% in September. Unfortunately the monthly durable goods numbers are always heavily influenced by the lumpy and volatile aircraft component, which if removed left only a relatively soft 2.0% increase.

Traders were pondering the result when a rumour spread that ratings agency Fitch was preparing to downgrade the US sovereign credit rating from AAA, matching Standard & Poor's downgrade of a year ago. The rumour was quickly denied by Fitch, who confirmed the rating will remain at AAA with an ongoing “negative watch” to be reconsidered in 2013. A jittery Wall Street had nevertheless sold off into the red by lunchtime, and by the close only a small recovery was achieved.

Elsewhere the news was more positive, with China's Ministry of Information & Technology issuing a brief statement to suggest Chinese industry had shown signs of stabilising in recent months and that an increase in output should be expected in the fourth quarter. The UK released its first estimate of GDP and surprised with 1.0% growth against expectations of 0.6% – the best result since 2007. The quarter did, nevertheless, include the Olympics to somewhat cloud the picture.

With no major earnings shocks reported on the day Wall Street settled for a quiet session. Nervousness remains over ongoing corporate reports, but looming ever so closer is the election and a possible slip off the fiscal cliff. Until the political and thus fiscal picture is clearer, it is unlikely even a positive trend for the remainder of the earnings season will be enough to overcome uncertainty.

The US dollar index finished slightly higher at 80.05 and the Aussie was also a little stronger at US$1.0354. After a bad week for gold, the precious metal staged somewhat of a comeback with a US$11.00 gain to US$1712.60/oz, buoyed by Wednesday night's reiterated commitment from the Fed to maintain easy monetary policy, despite recent fears of creeping inflation.

General uncertainty regarding elections and cliffs is also dominating commodity markets at present, with base metals all a little weaker last night, while the oils recoverd a little after a run of selling. Brent rose US74c to US$108.59/bbl and West Texas added US34c to US$86.07/bbl.

Spot iron ore has now recovered the US$120/t mark, having risen US$1.30.

The SPI Overnight rose 5 points or 0.1%.

Tonight the US will post its own first estimate of September quarter GDP. Consensus is for 1.8% growth to better the June quarter's 1.3% result.

Macquarie Group ((MQG)) will report its interim earnings result today after another half of uninspiring market volumes. The AMP ((AMP)) will provide further enlightenment with its quarterly funds flow data and ResMed ((RMD)) will provide a quarterly update.

 

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