The Overnight Report: Back To A New High

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By Greg Peel

The Dow closed up 106 points, or 0.7%, while the S&P gained 0.7% to 1593 and the Nasdaq added 0.9%.

Offshore markets had their first chance last night to respond to news of the formation of a government in Italy. The world had assumed Italy would have to go back to the polls given the deadlock of the first election, but after months of negotiation the centre left and centre right parties have managed to cobble together a tenuous coalition that pits new prime minister Enrico Letta against a deputy prime minister from the Berlusconi camp.

Many an observer does not give this government much chance of longevity, but Europe was relieved nevertheless, and heartened by Letta’s inaugural speech in which he pledged to move towards growth policies and away from austerity policies. As to how the troika responds is another matter.

Adding to a more positive mood in Europe is the expectation the ECB will cut its cash rate on Thursday, although economists are presently split fifty-fifty on the chances. A 15 basis point fall in the Italian ten-year bond rate to 3.87% was welcomed nonetheless.

The news from Europe had the euro rallying and thus the US dollar falling, with the US dollar index down 0.5% to 82.12 to provide a footing for some “risk on”.

On Wall Street, the session featured a gradual rise throughout the day based on some positive earnings results from lesser names. Apple announced it would issue bonds to underpin a capital return to shareholders and its shares rose 3%, while Chevron (Dow) kicked on another 1% after its announced dividend increase last week.

US pending home sales rose 1.5% in March, which inspired more confidence, while personal spending rose 0.2% against expectations of 0.1% which was also positive. However, personal incomes rose by 0.2% when economists had expected 0.4%, which took the gloss of this data set. Incomes began to be impacted by the sequester in March.

The Dow was up 132 points at 2pm, so it didn’t quite finish at the high and did not mark a new all-time high. The more relevant S&P 500 has lagged the Dow in the all-time stakes, but last night just managed to scrape in a new closing high, albeit not intraday high, at 1593.61 (previous 1593.37). Can we go higher from here? Nerves have begun to set in given that after tonight on Wall Street, the clock strikes May. If we don’t have a decent correction in the next couple of months it will be the first time since 2009, at which point markets were rebounding out of the GFC nadir following the introduction of QE1.

This year Ben Bernanke has announced he will not be attending the August conference at Jackson Hole, famed locale for new QE announcements, and no one’s entirely sure why not.

China is on yet another holiday until Thursday and increases in base metal prices in Friday night were put down to Chinese squaring ahead of the break. Increases of around 1% last night were put down to speculators trying to push the Chinese to buy again when they return.

With China on holidays, spot iron ore is unchanged at US$134.10/t.

The oil market is apparently backing an ECB rate cut, and backing no back-down from the Fed, in pushing crude prices higher. Brent was up US77c to US$103.74/bbl and West Texas rose US41.35 to US$94.35/bbl.

The weaker US dollar had gold rising again, up US$12.80 to US$1474.60/oz, and the Aussie breaking out of last week’s tight range to add 0.7% to US$1.0353.

The SPI Overnight jumped 21 points or 0.4%.

ANZ Bank ((ANZ)) will report its interim result today, while several resource companies will provide production reports, including Beach Petroleum ((BPT)), Paladin Energy ((PDN)) and Origin Energy ((ORG)). Woodside Petroleum ((WPL)) goes ex its special dividend today, so the shares start with a negative 63c handicap and the index will be impacted accordingly.

Rudi will appear on Sky Business tonight at 5.30pm.
 

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