The Overnight Report: Nasdaq, Russell Fight Back – Again

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By Greg Peel

The Dow closed up 20 points or 0.1% while the S&P gained 0.4% to 1885 as the Nasdaq rose 0.8%. The Russell 2000 rose 1.0%.

It started in the iron ore stocks yesterday but it soon spread like wildfire across the wider Australian market. Another US$2.20 drop in the iron ore price overnight to US$98.50/t, below the psychological 100 mark, does not bode well for the materials sector again today. Yesterday, however, it was not just about China but about Tony. Rarely do politicians have any meaningful impact on the stock market, but yesterday’s popularity polls suggested a big drop in Australian consumer confidence ahead.

And that translates through the system, from retailers to banks and beyond. While the materials sector led with a 1.9% loss yesterday, consumer discretionary (-1.5%) and banks (-1.1%) were also hit. Banks (and other financials) represent about 40% of the ASX 200.

Not helping yesterday was news from China that eight major cities saw house prices declining in April when only four saw declines in March. Is the Chinese property market rolling over?

Put it altogether and Bridge Street had one of its familiar snowballing sell-offs yesterday, which tend to happen quite regularly when someone says “overvalued”. At this stage the SPI Overnight is pointing to a 20 point rebound today, but the SPI Overnight is not always an accurate predictor.

Over on Wall Street, the Dow opened down 50 points. It was to prove to be, nevertheless, one of the lowest volume trading days of the year. A lot of factors were hanging in the balance by the end of last week. Would the Russia-Ukraine tension escalate or ease? Was the US ten-year bond yield about to break technical support and rush towards 2%? Was the momentum stock and small cap sell-off still only in its early stage? All these factors have Wall Street nervous at present. Traders covered shorts late on Friday, sending the Dow rallying 50 points to its closing level, and apparently re-established them from the bell last night, having moved to the sidelines for the weekend.

There were no data releases to speak of to contemplate early in the session. But right from the opening drop, the Nasdaq started to rally. And the Russell started to rally. The S&P was helped up by the Nasdaq and after a spluttering start, the blue chips began to follow suit.

A firm eye was kept on the ten-year bond yield. It too began to rise, ultimately closing up 2 basis points to 2.53%. It’s not a big reversal, but it is a reversal so far. Then everything fed on itself. It’s not unusual for stock traders to say stocks went up because bond yields went up and for bond traders to say bond yields went up because stocks went up.

Whatever the case, the lack of volume renders last night’s session relatively ineffective as a trend indicator. We may need to wait for Wednesday night’s Fed minutes and Yellen speech and data releases later in the week to gauge what will happen next.

The US dollar index remained steady at 80.03 and gold remained steady at US$1293.00/oz. The Aussie is 0.4% lower at US$0.9328 on the China/iron ore factor, and on yesterday’s stock selling by foreigners, one presumes.

Volumes were also very low over on the LME, similarly providing a vacuum for price rallies. All metals rose around half to one percent except for nickel. Having been thumped about 10% in recent sessions, nickel rebounded again last night by a quiet 6%.

Spot iron ore, as noted, fell US$2.20 to US$98.50/t.

The oils were split between a US43c drop for Brent to US$109.32/bbl and a US60c rise for West Texas to US$102.62/bbl.

The SPI Overnight, as noted, closed up 20 points or 0.4%.

The minutes of the May RBA meeting are due out to today but as they are cum-budget, they lack relevance. Arrium ((ARI)) will report its quarterly iron ore production today – timely – while Transurban ((TCL)) will provide an update.
 

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