The Overnight Report: Snowbound

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By Greg Peel

The Dow fell 23 points or 0.1% while the S&P rose 0.1% to 1840 as the Nasdaq added 0.4%.

With no lead from Wall Street and some mixed earnings reports to consider, Bridge Street posted a choppy but ultimately steady session yesterday. The market seemed uninterested in a 3% jump in the Nikkei, sparked in the wake of the Bank of Japan’s declaration it would double incentives designed to increase bank lending, in order to increase the flow-through effect of monetary stimulus and boost inflation. Even with the 3% jump, the Nikkei is down 9% for the year.

The minutes of the February RBA meeting, released yesterday, would not have inspired either. No surprises, but it does appear rates are on hold for the foreseeable future:

“At recent meetings, the Board had judged that, given the substantial degree of monetary policy stimulus already in place, it was prudent to keep policy unchanged while assessing the continuing impact of that stimulus. There had been further signs in recent months that policy was having its intended effects. The exchange rate had also depreciated further since the December meeting. If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy.”

It should be a positive statement really, but in the wake of all that is going on in the Australian economy at present – Toyota, SPC Ardmona ((CCL)) and now Alcoa – fear is we are heading down a path to recession which the RBA is not going to act upon. Of course, these developments are all headline grabbers and not quite as significant in the wider scheme of things as sensationalist news reports might have us believe.

Wall Street was back from its long weekend last night and wasted no time in once again exercising the Weather Put. The Empire State manufacturing index surged to around a two-year high of 12.5 in January but has fallen back swiftly to 4.5 this month. It’s the weather of course, which despite being far from balmy in January has become prohibitive of commercial activity again in February, as was the case in December.

The weather excuse was also used for the biggest single-month plunge in the history of the NAHB housing market sentiment index, to 46 this month from 56 in January. The 50 level represents the swing into confidence. The compilers cited “unusually severe weather conditions”, among other factors.

It’s those “other factors” that have many on Wall Street a little bemused. One after another these weak data are stacking up. Is it really just all down to weather? Or is the snowstorm masking true underlying weakness? One might be forgiven for thinking that if weakness in housing in February is only down to snow, surely sentiment can account for that. This is not an empirical index. We saw consumer sentiment jump unexpectedly last fortnight, yet no one can get to the shops.

Whatever the case, we will need to see what is uncovered when the snow finally melts. At this stage the bureau is not suggesting one holds one’s breath. Winter storm “Rex” is currently moving through the mid-west on route to the north east.

Sick ‘em, Rex. (You’d have to be my age to understand that one.)

Wall Street saw a nothing sort of session balanced by weakness in blue chips and strength in the techs. The Dow was impacted by a 4% drop in Coca-Cola after this late reporter posted a weak result (as was the case locally yesterday, albeit Coca-Cola Amatil is its own master. Has the fizz gone?)

Weather or not, European economic data have looked a lot healthier than US data of late which is why the US dollar index is actually down a tad to 80.02 despite a BoJ-inspired drop in the yen. The Aussie is also therefore stuck in the snow at US$0.9030 with the RBA unmoved. Gold finally took a breather last night and fell US$5.60 to US$1323.60/oz.

Spot iron ore also took a breather and is unchanged at US$124.40/t.

The weak dollar is providing inspiration for base metal prices, which all rose by varying smallish amounts last night. Aluminium and lead gained 1%.  

Rex is providing inspiration for oil prices, as is news Libyan production has fallen short of targets and rebels have surrounded the capital of South Sudan. Brent rose US$1.46 to US$110.48/bbl last night and West Texas leapt US$2.25 to US$102.55/bbl.

The SPI Overnight was up 6 points.

It’s a busy day on the local earnings front today with results expected from Brambles ((BXB)), Fortescue Metals ((FMG)), Wesfarmers ((WES)) and Woodside Petroleum ((WPL)) among many others, including a maiden from Dick Smith ((DSH)).

Rudi will not make his usual appearance on Sky Business today and will also remain absent at noon tomorrow. Instead, he will present at the ASA's Sydney Investor Forum, from noon till 1pm. Venue is the theatre, 1st floor, Sydney Mechanics School of Arts, 280 Pitt Street (near Bathurst Street).

Title of the presentation is "The Share Market: Always Different, Always The Same".
 

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