The Overnight Report: Headless Chooks

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By Greg Peel

The Dow closed up 89 points or 0.6% while the S&P gained 0.7% to 1842 and the Nasdaq finished up 0.4%.

As expected, there was nothing in yesterday’s RBA minutes that shed further light beyond Glenn Stevens’ statement earlier in the month. The cash rate remains appropriate at this point although the central bank still sees unemployment edging a little higher from here. Mind you, the meeting was held before the release of the March jobs numbers which showed unemployment falling to 5.8% from 6.0%.

And consistent with the statement, there was no longer any attempt to talk down the Aussie. If the RBA feels its next move will be a hike rather than another cut, it’s a bit hard to dupe forex markets into selling the currency. Leave that to Mr Draghi.

As was also expected, the ASX 200 rebounded yesterday after Monday’s rolling sell-off using the bounce on Wall Street as the lead. Wall Street’s bounce was none too convincing and nor was yesterday’s recovery on Bridge Street, which lost a bit of momentum in the afternoon. Both markets are currently experiencing thin holiday volumes.

Nowhere was this more apparent than on Wall Street last night. In short, the Dow was up 99 points at 10am, down 110 points at 1pm, and closed at 4pm up 89.

Early strength was attributed to positive earnings results from Dow components Coca-Cola, which finished up 3.7% on the day, and Johnson & Johnson (2.1%). But economic data was mixed. April housing market sentiment rose to 47 from 46 in March when economists were hoping for 50 (neutral sentiment). The Empire State manufacturing index fell to 1.3 from 5.6 when 8.0 was the target (zero is neutral). And the CPI rose 0.2% in March on both the headline and core readings when 0.1% was expected.

The core CPI is up 1.7% over twelve months and remains below the Fed’s 2.0% comfort level, but now appears to be on the rise following years of stagnation. This is not good for those wanting the Fed to temper its tightening, but weaker than expected economic data go some way to supporting a less aggressive tapering program.

A report then hit the wires that Russian troops had been spotted inside the Ukrainian border and that Ukrainian troops had stormed an airport in the east of the country and ejected pro-Russian protesters. The White House accused the Kremlin of provoking Ukraine into confrontation. US stocks then tumbled.

But – and this is a big but – if geopolitics was the reason for sudden panic in stocks one would safely presume a counter rush into safe havens. But the US ten-year bond yield managed only to fall one basis point to 2.63% and gold crashed US$24.90 to US$1302.40/oz.

What the hell is going on in gold? Trying to figure that one out will send you to an early grave. The suggestion is traders used US dollar strength as an excuse to take profits ahead of the Easter long weekend. The dollar index was up a whopping 0.08% to 79.80.

Meanwhile back in the stock market, the lunchtime nadir saw the Nasdaq down 1.8% on the day, supporting my suggestion yesterday that the late rally back on Monday night looked unconvincing. But at that point the high-tech index was down almost 10% from its high — the “definition” of a correction. And at that point the buyers said that’ll do. The bungee rope reached full stretch.

Over in London, base metal traders also worried about the Ukraine but nonetheless decided it was wise to square up ahead of today’s China GDP release. Copper and aluminium bore the brunt with 1.5% falls, while the others were less impacted.

Having supposedly worried about the Ukraine on Monday night, the oils fell back last night, just to confuse the issue, although it was expiry day for Brent. It fell US33c to US$108.74 and West Texas fell US30c to US$103.75/bbl.

Spot iron ore rose US10c to US$117.10/t.

When the RBA minutes were released yesterday the Aussie held steady just under 94 but is now down 0.7% to US$0.9361 over 24 hours. Forex traders point to the big fall in gold and the fall in copper as influential, and realistically traders (who are now net long according to US futures data, rather than net short as they were before the recent spike) probably also decided it safer to square up ahead of China’s GDP.

The SPI Overnight rose 9 points.

So all eyes will be on Beijing today with fingers crossed for the GDP result. Expectations are for the lowest growth rate in a couple of decades at 7.3%. Mind you, higher would be good, but lower would elicit assumptions of more stimulus so might be good too. Who knows these days?

Beijing will also deliver a monthly data dump of industrial production, retail sales and fixed asset numbers. Ahead of those releases, BHP Billiton ((BHP)), Fortescue Metals ((FMG)) and Iluka Resources ((ILU)) will report quarterly production numbers.

Tonight in the US sees the Fed Beige Book along with important housing start and industrial production data. The numbers of market participants will be starting to thin on both sides of the Pacific, and tomorrow Bridge Street will be a ghost town.

Rudi will appear on Sky Business at 5.30pm.
 

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