The Overnight Report: Flat As A Tack

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By Greg Peel

The Dow closed flat the S&P closed flat and the Nasdaq closed flat.

Yesterday’s Australian housing lending data showed the value of loans to owner-occupiers is up 6.7% year on year, to investors it's up 29.8%, and to construction-related projects it's up 5.7%. Investors clearly continue to dominate the market despite indications of potential peaking in house prices. Interesting that investors are choosing yields below that of bank deposit rates rather than looking to higher yields available in the stock market.

There is of course less risk in bricks and mortar.

ANZ’s job ads series showed its first fall in five months to be net down 3% year on year, although the positive trend of the last six months suggests to the economists at CBA unemployment has still likely peaked under 6%. The ANZ economists nevertheless find it difficult to reconcile April’s 5.6% fall in job ads and the pre-budget plunge in Westpac’s consumer confidence measure with yesterday’s NAB business confidence survey which showed a slight fall in perceived business conditions but no change in confidence.

The first post-budget (cum Senate passage) Westpac survey is due out today which will no doubt be interesting, and possibly of little comfort to the likes of Pacific Brands ((PBG)) and The Reject Shop ((TRS)) which both issued “confession season” profit warnings yesterday, citing falling consumer confidence as well as the unseasonably warm autumn. The consumer sectors were yesterday responsible for the flat close on Bridge Street despite a 30-plus point opening rally in the ASX 200. Healthcare was the only other negative contributor, but CSL is to the healthcare sector what Telstra is to the telco sector in cap-weight terms – most of it.

China released its May inflation data yesterday but this had little impact on the tenor of the Australian market. China’s annual CPI rose to 2.5% from 1.8% in April, slightly ahead of 2.4% expectations but still well below Beijing’s 3% upper limit, suggesting no impact on room to move policy-wise. The PPI “rose” to minus 1.4% from minus 2.0% in April to suggest possible stability emerging in factory prices following 27 consecutive months of disinflation. If so, this is good news for China’s economic growth.

That about wraps up the action over the past 24 hours as absolutely nothing happened on Wall Street. There were no economic releases or anything of note in the corporate sector so it was Dullsville all day to a flat close.

It was thus strange that gold suddenly emerged from a week’s sleep to rise US$7.40 last night to US$1260.20/oz, despite another euro-related rise in the US dollar index of 0.2% to 80.80, with increased Chinese inflation offered as a weak excuse. Wall Street’s stall at new highs these past couple of sessions may be providing some impetus to look at gold, if one suspects a pullback might be in order for stocks. The US bond market does not offer a lot of upside potential as an alternative, and indeed the ten-year yield ticked up a couple more basis points to 2.63% last night.

The Aussie is up 0.2% also, at US$0.9371, likely due to Morgan Stanley yesterday joining the chorus of economists predicting a return to parity by year end – mostly the same mob who were suggesting 86 cents earlier in the year. The difference is US bond yields have not rallied as expected and the US dollar has not rallied as expected under Fed tapering. And now the ECB is playing the QE card. So even as Australia’s own bond yields plummet, they are still attractive as AAA-rated returns in a zero yield world.

LME traders are now eyeing the summer, leading to declining interest in metals markets. Last night saw a quiet session highlighted by aluminium and nickel edging down around a percent.

Spot iron ore fell US70c to US$93.60/t.

It was also dull on oil markets, with both major crudes falling US20-30c.

The SPI Overnight soared one point.

As noted, Westpac releases its local consumer confidence survey today. There are no US releases of note until tomorrow night.
 

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