The Overnight Report: Spooky End To The Month

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By Greg Peel

The Dow closed down 73 points or 0.5% while the S&P lost 0.4% to 1756 and the Nasdaq fell 0.2%.

It was an unusual day on Bridge Street yesterday. The index closed down 5 points but only because the big banks fell. Every other sector went up. National Bank ((NAB)) started the slide with a slightly less than hoped for earnings result, although there were no complaints about the dividend. Then along came some disappointing private sector credit data, and let’s face it, the banks have been rife for a pullback for some time. Particularly since the ANZ Bank ((ANZ)) dividend kicked them all along again earlier in the week.

Private sector credit grew 0.3% (month on month) in September, missing 0.4% expectation. It was nevertheless the breakdown that was disappointing. Business credit remained subdued at 1.7% annualised growth for the September quarter. Analysts have recently been factoring in an expected recovery in business credit demand after five years in the doldrums when valuing bank stocks. Perhaps October’s data might show some light, given the election occurred in September.

Housing credit demand was nevertheless healthy in September, and September building approvals shot up by 14.4%. This was due to a 32% increase in lumpy apartment block approvals, while single house approvals rose 1.9%. As we move into 2014, analysts are hoping for ongoing strength in the demand for housing credit and a long awaited return to growth in demand for business credit.

It was a case of trick or treat on Wall Street last night, with the indices bungling along doing not much all session until right at the absolute death. While traders are still mulling over the implications of Wednesday night’s Fed statement, and a door left open for December tapering (it won’t happen), the final dump can be dismissed as relating to month-end. The S&P 500 rose a very healthy 4.8% for October, and it so happens many funds end their fiscal tax year in October, so if you got ‘em, lock ‘em in.

In economic news, the Chicago PMI jumped to a rocketing 65.9 in October, up from 55.7 in September and completely opposite to forecasts of a fall to 54.5. What shutdown?

The news was not so hot in Europe. The eurozone’s annual rate of inflation fell to a paltry 0.7% this month, according to a flash estimate, from 1.1% last month. It’s the lowest reading since November 2009. The ECB’s target rate is just under 2%, and while Mario Draghi has continued to keep his big guns in storage, given we haven’t seen any eurozone members hit the wall lately, it may only be a matter of time before he looks to play the Abe card.

The euro thus fell on the news, sending the US dollar index up 0.6% to 80.26. The Aussie has dipped 0.2% to US$0.9452, but the major victim of the dollar rise was gold, which fell US$20.20 to US$1324.90/oz.

Outside of the influence of the greenback and Fed policy, real demand for gold has somewhat gone missing this month. It’s the Indian festival of Diwali, at which gifts of gold are the norm. The Indians can normally be relied upon to support gold prices at this time but increased import taxes imposed by the Indian government, in order to support the rupee, have put gold out of reach of a lot of average Indians. In 2012, India accounted for 20% of world gold purchases.

Base metal prices went nowhere much in October and closed the month on a weak note, affected by the stronger dollar. Copper fell 0.5%. Concerns over Libyan production disruptions eased last night, sending Brent crude down US$1.23 to US$108.77/bbl and West Texas down US44c to US$96.33/bbl.

Spot iron ore gained US70c to US$131.90/t.

The SPI Overnight rose 3 points.

A pinch and a punch and it’s PMI day today, with manufacturing numbers due from Australia, China (HSBC and official), the UK and US. For some reason the eurozone is waiting till Monday. China’s official services PMI will be out on Sunday.

Australia will see the September quarter PPI today and the RP Data-Rismark house price index for October. David Jones ((DJS)) will release its September quarter sales figures today while Macquarie Group ((MQG)) will post its interim profit result.

Clocks go back in the US this weekend, so as of Tuesday morning the NYSE will close at 8am Sydney time.

Munchkin alert. Don’t forget to either be out or hide in the house with the lights off on Saturday evening. Don’t make the mistake I made last year and put up a sign warning of a large hungry dog. You’ll get egged.
 

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