The Overnight Report: GI Blues

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By Greg Peel

The Dow rose 21 points or 0.1% while the S&P gained a point to 1771 and the Nasdaq was flat.

Bridge Street took a turn for the worse yesterday, against all expectation, turning a 55 point higher close in the futures on Saturday morning into about a 40 point gain in the ASX 200 from the open, before falling sixty-odd points for no apparent reason. Wall Street had provided a strong lead on a better than expected jobs number and China had provided some solid monthly data.

Given the Aussie has been down sharply over the past few sessions, yesterday’s action smacked of foreign selling, with the banks and telcos specifically in the crosshairs. The banks have been well supported despite stretched valuations but now that three of the four majors have gone ex-dividend, a lower Aussie is enough encouragement for foreigners to retreat.

There was certainly nothing wrong with the local housing finance numbers released yesterday, as long as you’re not a first home buyer. The pleasing number from the RBA’s point of view was a 5.7% increase in housing construction finance, which is good news for the building materials and other housing related sectors.

It was Veterans Day in the US last night which closes banks and the bond market while the stock market remains open. Activity was predictably light and there were no economic data releases. The indices opened a tad higher, with the Dow marking another all-time high, and stayed there.

Arguments continue to rage over the October non-farm payrolls release. With many on Wall Street still struggling to accept two hundred thousand jobs were added in a month when the government was shut down for two weeks. Sharp revisions often follow initial estimates, but the revisions accompanying the October number were all positive, suggesting the last few months have indeed seen an average of around two hundred thousand jobs added – a lot better than originally assumed. One stumbling block remains the participation rate, which again fell in October, sending the unemployment rate up to 7.3% from 7.2%.

In theory a rise in the rate of unemployment should push a Fed tapering decision out further in time, given at this stage a 6.5% rate is the trigger point for the first interest rate rise. But the number of average monthly job additions now has many suggesting December has tightened in the odds. There is no Fed meeting in November, on the FOMC’s six-week cycle, so we have to wait until December 18 to find out. Given the strong run on Wall Street all year, chances are we might just stall a bit now ahead of that meeting.

There is quite a buzz, nevertheless, surrounding an article in the Wall Street Journal suggesting the US retail stock market investor is back. Stock mutual funds have seen US$167bn of inflows year to date following outflows in both 2012 and 2011. But as CNBC points out, US$7.2trn is held in US stock mutual funds, so a 2% increase is hardly the stuff of euphoric mum & dad investment. Nor is there yet evidence of an anticipated switch out of bonds and into equities, with bond mutual funds also seeing inflows year to date, to the tune of US$42.5bn.

The US dollar index fell 0.2% last night to 81.09 but the Aussie is also lower by 0.4% to US$0.9354. Gold slipped US$4.00 to US$1283.70/oz. Base metal price movements were again negligible.

Oil was stronger as traders weigh up the stalled talks between Iran and the West on nuclear policy. Brent crude rose US$1.43 to US$106.48/bbl and West Texas rose US49c to US$95.09/bbl.

Spot iron ore was steady at US$135.90/t.

It would appear futures traders have decided yesterday’s surprising rout in Bridge Street was unnecessary, sending the SPI Overnight up 24 points or 0.4%.

News Corp ((NWS)) has just released its quarterly earnings and posted a year on year reduction in growth. The stock is down currently 4% in the US after-market.

NAB will release its monthly business confidence survey today while Aurora Oil & Gas ((AUT)), Endeavour Mining ((EVR)) and Leighton Holdings ((LEI)) will report quarterlies, SP Ausnet will post its interim, and Incitec Pivot ((IPL)) will post its full-year result.
 

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