The Overnight Report: Five Percent Will Do It

This story features NEWS CORPORATION. For more info SHARE ANALYSIS: NWS

By Greg Peel

The Dow rose 188 points or 1.2% while the S&P gained 1.2% to 1773 and the Nasdaq added 1.1%.

Australia’s trade balance was the shock result yesterday, marking a $468m surplus when a $200m deficit was expected. The small deficit recorded in November was also revised to a surplus of $83m. December saw a 15.1% increase in exports outpace 6.4% growth in imports, with a 17% jump in agricultural products, mostly cereals and meat, the driving force.

China took 38% of our exported goods and provided 18% of imports, making it by far our most important trading partner. By contrast, the US took 5% and supplied 10%. CBA economists expect iron ore and LNG exports to lift Australia to significant trade surpluses in the years ahead, with a coinciding reduction in the net income deficit driving current account surpluses of up to 1% of GDP by 2016-17.

Meanwhile, stand by for Joe’s end to the age of entitlement.

December retail sales rose 0.5% as expected, although 0.9% growth for the quarter was a tad below 1.1% expectations. Nonetheless, sales rose 5.7% in 2013 which is a big improvement on previous years. Retail prices also rose, which means volumes are no longer being driven by endless discounting – a positive for economic growth.

Bridge Street had already started on a happier note yesterday, having needed a couple of days to decide Wall Street had indeed steadied and an extra day to get over the thought of no more RBA rate cuts. The central bank appears quite justified following yesterday’s data, which provided the index with a further kick on release. The Aussie unsurprisingly also rose 0.6% to US$0.8962, although this is about the level it settled after the RBA statement release.

Last night’s session on Wall Street had all the hallmarks of “5% will do, thank you”. It was a bold move ahead of tonight’s non-farm payrolls release but providing some impetus last night was a large drop in new jobless claims in the previous week. A strong result from Dow component Walt Disney sent its shares up 5% while Costco chimed in with a 3% gain and shares in coffee roaster Green Mountain jumped 27% when it was announced Coca-Cola (Dow) had bought a 10% stake.

On the other side of the ledger, fledgling listing Twitter came back to earth with a 22% fall after disappointing with its numbers released after the close on Wednesday. Twitter is not yet profitable (and in the minds of some never will be) yet its shares have rallied 150% since listing.

Nevertheless, last night’s 1.2% jump in the Dow was the first 1% up-move seen in 2014.

Across the pond, the ECB left its cash rate unchanged at 0.25%. Europe has recently been caught between improving economic data and falling inflation, with the last read of 0.7% CPI growth prompting warnings the debt-laden bloc was at risk of falling into a deflationary spiral a la Japan in the nineties. ECB president Mario Draghi insisted last night inflation expectations were “well-anchored” and that price declines do not resemble those seen in Japan two decades ago. The Bank of England also left its cash rate unchanged as expected.

Subsequent strength in the euro sent the US dollar index down 0.2% to 80.89 while gold was steady at US$1257.40/oz.

An upbeat Wall Street and soothing talk from the ECB helped base metals to all move up around 1%, except tin which was steady. Similarly, Brent crude rose US$1.04 to US$107.25/bbl and West Texas gained US46c to US$97.84/bbl.

China has now returned from holiday and the iron ore price fell by $1.40 to US$121.00 a tonne.

The SPI Overnight rose 37 points or 0.7%.

After the bell on Wall Street, another social media darling, Linkedin, posted a disappointing result. Its shares are down 11% in the after-market. News Corp’s ((NWS)) result by contrast has prompted a 1.5% gain.

The RBA quarterly Statement on Monetary Policy is out today along with the local construction PMI, while China will release its January trade balance tomorrow.

The world will hold its breath for the US January jobs numbers tonight although forecasts are difficult to make given the weather effect. The weather was again bad in January, so if the result is again bad then weather cannot be ruled out as a cause. If the number is good, that means the December number really was bad. Stand by for confusion.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms