The Overnight Report: Relaxed And Buying

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By Greg Peel

The Dow closed up 69 points or 0.4% while the S&P gained 0.6% to 1911 and the Nasdaq surged 1.2%. The Russell rose 1.4%.

The flat close for the ASX 200 yesterday was of little surprise given no lead from either Wall Street or base metals prices although the close did belie an early attempt to rally away from the gravitational pull of 5500, which was scupperred by some announced write-downs from individual companies. Looks like we’ve still got more work to do around this level.

For Wall Street, S&P 1900 was the magic number ahead of the weekend and after a relaxing break for Memorial Day, investors decided the odds remain in favour of stock markets rising. Friday’s close of 1900 was a new all-time high but simply a round number which last night’s close of 1911 suggests is nothing special. Blue skies are smiling on the broad market index while the Dow is sitting 30 points short of a new all-time high. The Nasdaq/Russell rebound continues.

Wall Street seemed to like the outcome of the Ukrainian election, which saw a chocolate billionaire resoundingly endorsed by most everyone who voted, which didn’t include ethnic Russians. Putin has said he’s prepared to engage with Mr Poroshenko, which is heartening, but no one seems to have paid much attention to the escalation of government attacks on pro-Russians in the wake of the poll.

The EU election results were also a relief, given the status quo has largely been maintained despite a rising tide of fascism and euro-scepticism. Markets like stability. Unless we’re talking gold, which usually appreciates on concerns over instability. A geopolitical premium had been built into gold before the metal fell completely asleep this month. Something had to give, and give it did last night. Gold fell US$28.80 to US$1263.70/oz.

If it wasn’t going up it was only a matter of time before it had to come down.

Home price data releases were a feature on Wall Street last night with the Case-Shiller 20-city index showing the first increase in five months, with a 0.9% gain. However year on year, prices were up 12.4% in March having been up 12.9% in February and 13.7%, being the peak, last November. Gains in house prices are mostly being achieved at the higher end of value, evident in the FHFA price index of houses with Fannie/Freddie mortgages rising 0.7% in March for only a 6.5% year on year gain.

US new durable goods orders rose 0.8% in April which shocked analysts who were expecting a 0.8% drop. The detail nevertheless revealed one huge naval order, and stripping out military and aircraft orders actually left a fall of 1.2%. That’s not good, except that the March numbers were revised to indicate non-military/aircraft orders rose a whopping 4.7% in March instead of the initially published 2.2%. March represented the thaw.

The Conference Board’s monthly measure of consumer confidence has risen to 83.0 this month as expected, up from 81.7 in April. Rising confidence means more spending, which is a good thing, but US wage growth remains flat so Americans have taken to spending more on credit. Some of us have seen that movie before. Fortunately personal credit levels are still way below the 2006 peak in pandemonium.

The Richmond Fed manufacturing index remained steady in May from April at plus 7.

So yet again the US data are good…ish. In pushing up stock prices, Wall Street is discounting solid gains for second and third quarter GDP numbers following what is expected to be a revision into the negative for the first quarter result on Thursday. The bond market, on the other hand, remains wary. The ten-year yield last night slipped back 2bps to 2.52%.

The US dollar index was up a tick to 80.35 while the Aussie is 0.2% higher at US$0.9257.

London was back in business last night but there was little excitement on the LME, where price moves were minimal. Even nickel had a quiet session. Spot iron ore fell US50c to US$98.10/t.

The oils went nowhere last night.

The SPI Overnight closed up 7 points.

Today brings the first of the March quarter GDP constituent results in Australia in the form of construction work done, and there’ll again be some action on the corporate front. Aristocrat Leisure ((ALL)) will report its interim result and Programmed Maintenance ((PRG)) its full-year while Wesfarmers ((WES)) will hold a strategy briefing and Iluka Resources ((ILU)) is among those holding their AGMs.

Rudi will appear on Sky Business at 5.30pm.
 

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