The Overnight Report: Wall Street Gets The Jitters

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By Greg Peel

The Dow closed down 44 points or 0.3% but the S&P gained 0.3% to 1843 and the Nasdaq rose 0.7%.

Bridge Street posted a solid turnaround yesterday as a weak start, led by iron ore names, gave way to renewed interest in the recently unpopular banks. A US$2.50 drop in the iron ore price spooked traders and sparked fears of lower prices to come, although we’ll need to come out of the other side of the New Year break in China to ascertain what the real picture is. Meanwhile, the PBoC injected cash into China’s banking system yesterday to head off the rush of withdrawals typically associated with New Year cash gifts.

The Chinese short term rate fell 88 basis points to 5.44% on the news and stock markets across Asia posted gains. The Dow futures also pointed to a rise ahead of Wall Street’s reopen last night, helping to spur on the local market.

Wall Street did indeed open strongly, up 62 Dow points, but then fell in a heap. Dow components Verizon and Johnson & Johnson both posted earnings beats but Verizon cited growing competition and J&J provided a disappointing full-year outlook, leading the shares of both to fall around 1.3%.

A BA-Merrill Lynch survey has found the number of global fund managers who think US stocks are overvalued is at its highest level since 2000 – the year of the tech wreck. This may explain why, with no economic data releases of note to consider last night, Wall Street was down 112 Dow points by midday. Investors are skittish up here in the rarefied air. Earnings results to date have been okay, but okay is not going to cut it. Yet again revenue growth is proving elusive. The Fed is expected to slice another ten billion off QE3 after its meeting next week, despite the weak December jobs number, which by now has largely been attributed to snow, and lots of it.

Speaking of snow, there’s lots of it again rolling into New York, and last night saw trading floor numbers begin to thin as traders elected to head home before they couldn’t anymore. Low volumes are adding to the volatility.

As are the surveys. A separate Bloomberg survey has found investors are the most bullish about the global economy they have been for five years. Bullish about the economy – worried about overvaluation. Unless subsequent earnings reports provide for some solid upside surprise, we could be looking at some further consolidation in light of now ever reducing Fed support.

Wall Street nevertheless recovered towards the close last night, with only the lumpy Dow closing in the red. The US dollar index was steady at 80.10 but gold is giving way once more to more taper-talk. Gold fell US$11.90 to US$1242.80/oz. The Aussie is a tad higher at US$0.8813 ahead of today’s CPI release.

Nickel kicked back to life last night with a 1% gain, with all other metals mixed on smaller moves. The apparent pain continues for iron ore, with the spot price falling another US$1.60 to US$123.20/t.

The oils were slightly stronger, with Brent up US14c to US$106.77/bbl and West Texas up US51c to US$94.88/bbl.

The SPI Overnight fell 7 points.

Australia’s December quarter CPI numbers are out today, with 2.7% expected on the headline and 2.3% on the core. Westpac will release its consumer confidence survey for January and BHP Billiton ((BHP)) just released its December quarter production report.

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