The Overnight Report: Selective Weather

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By Greg Peel

The Dow rose 92 points or 0.6% while the S&P gained 0.6% to 1839 and the Nasdaq added 0.7%.

It was a solid start on Bridge Street yesterday in the face of a fall on Wall Street, led by a raft of well-received corporate earnings results. Prior to yesterday’s results the FNArena Reporting Season Monitor was showing a beat/miss percentage ratio of 35/25 but that does not take into account the extent of beats and misses. Anecdotally one would suggest the beats on average have been more substantial than the misses, at this stage.

It all came a cropper around midday nevertheless on the release of HSBC’s flash estimate of China’s February manufacturing index. The market had been hoping for a return to expansion after January’s drop into contraction at 49.5 but, alas, the industry slowed further with a fall to 48.3. The morning’s gains were quickly erased to leave a relatively flat session.

After several years of following Chinese data I can confidently suggest that there is always surprise and concern around the numbers in the first two to three months of the year. Chinese New Year is quite simply a disruption, going in, going through and coming out again. We have to get at least into March this year to reliably (if, at all, one can say that with Chinese data) gauge performance.

After closing weakly on Wednesday night, Wall Street got off to wobbly start last night as it weighed up China and a mixed bag of local economic data.

The Philadelphia Fed manufacturing index fell to minus 6.3 this month from plus 9.4 in January when economists had forecast plus 7.4. Well that’s an easy one – snow.

Really? So how come the flash index for all US manufacturing rose to 56.7 from 53.7 in January? Were the production lines running hot in California? That’s the highest reading in almost four years.

The great weather debate will continue, and in the meantime Wall Street will use the excuse discriminately. The PMI was cited as reason to buy, and by session’s end all of Wednesday night’s fall was erased. In other economic news, the Conference Board leading index for January came in at 0.3% growth when 0.4% was expected, and the January CPI showed a mere 0.1% increase on the headline, despite the soaring cost of natural gas, and a 0.1% increase on the core as well. Annual core inflation is running at 1.6%.

So we have Chinese data we can never be sure of (that is not intended as a slight against HSBC – HSBC has to source the base numbers in China) and US data we really have no idea how to interpret. Meanwhile, the very tail end of the US earnings season is still with us, and after a so-so start the conclusion is earnings growth was actually quite healthy indeed, and the forward numbers look even healthier.

As noted earlier, if the Australian season maintains its tenor through next week then we are in for a better than expected result season as well.

The US dollar index ticked up 0.1% to 80.29 on the US PMI and while the Aussie fell under 90 yesterday on the Chinese PMI, it’s back at US$0.9011 this morning. Gold bounced back US$10.00 to US$1322.80/oz and as the US stock market has risen, so have US bond yields been quietly ticking up, with the ten-year yield now up to 2.75%. For once, that’s actually the right correlation – stock prices up, bond prices down.

Base metals were generally weaker in London last night on the Chinese PMI, with lead and nickel down 1%. Spot iron ore fell US$1.00 to US$122.90/t.

The oils have stalled again, with Brent down US19c to US$110.33/bbl and West Texas down US11c to US$103.20/bbl.

The SPI Overnight was all fired up for another solid session on Bridge Street today, up 44 points or 0.8%. If accurate, we’d be looking at regaining the October post-GFC high.

Insurance Australia Group ((IAG)), Iluka ((ILU)) and Santos ((STO)) are among the big names reporting in today’s local session while National Bank ((NAB)) will provide a quarterly update.

Sydney is abuzz with the arrival of the G20 finance ministers for their meeting over the weekend at which we can be assured absolutely nothing of any substance will be decided.

TGIF.
 

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