The Overnight Report: Beyond 2000

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By Greg Peel

The Dow closed up 75 points or 0.4% while the S&P gained 0.5% to 1997 and the Nasdaq added 0.4%.

The Australian market fell yesterday not because Wall Street was a little weaker but because iron ore miners were sold off in a big way, following another steep fall in the iron ore price on Friday. The materials sector fell 1.1% when every other sector was little moved, bar energy, which was boosted by a 7% jump in Caltex ((CTX)), reminding us we’re in earnings season.

Watch out today. The iron ore price now starts with an eight.

While the local market is in earnings season, Wall Street is in summer season. The week leading into the Labor Day long weekend is traditionally the quietest of the year, being officially the last week of the holidays. Friday night posted the lowest volume all year until last night came along and broke that record.

This meant that when the S&P500 traded at 2000 for the first time in history last night, just before 11am local time, about four people on the NYSE floor cheered. And even they weren’t particularly enthusiastic. In 1998, when the S&P first crossed 1000, everyone went nuts.

So if you’d put $1000 into the Wall Street “index” sixteen years ago, gritted your teeth through the tech wreck of 2001 and again when Lehman collapsed in 2008, you’d have $2000 now. Whacko the chook. And that’s nominal. In 1998, gasoline in the US cost around a dollar a gallon and at the moment it’s about US$3.50.

Puts dividends into perspective, doesn’t it?

For the record, in 1998 the ASX200 crossed 2500.

US data releases were mixed last night. The Chicago Fed national activity index rose to 0.39 from 0.21 but sales of new homes fell 2.4% in July. The latter number often comes in for derision nevertheless, as it is extremely volatile. The market was disappointed when the June number showed a surprise fall as well, but last night the June number was revised to an increase. Thus the July result represents a fall from the newly revised June level. And sales are up 12.3% over twelve months.

Yet the real reason Wall Street rallied last night, according to traders, was because of Europe. European markets had closed on Friday night before Mario Draghi stepped to the podium in Jackson Hole and told the world he would do whatever it takes to stimulate the eurozone economy, including “unconventional” measures (QE). Apparently, European traders were taken by surprise by this comment, as they had not expected the ECB to play the QE card. Hence last night the German DAX rose 1.8%, the French CAC rose 2.1%, and European money pushed the S&P beyond 2000. Note that the Wall Street high was achieved before 11am, and European markets close at 11.30am NY time, as I have previously noted.

Have these European traders been living in a cave? To my recollection, Draghi hasn’t shut up about QE for a good year now. Hasn’t done anything about it, granted, but then he does like to try and talk markets up, or currencies down, before actually acting. Why his Jackson Hole speech came as a surprise to anyone is a mystery. Eurozone data have done nothing but deteriorate – last night the German IFO business sentiment index fell by more than expected, to a 13-month low – and Draghi has long chanted his mantra of “whatever it takes”.

The euro fell to its lowest level in almost a year last night, pushing the US dollar index up 0.3% to 82.56. The Aussie is down 0.2% to US$0.9297 through the crosses, but bad luck if your revenues are in euro. Gold fell back the same US$4.40 it rose on Friday, to US$1276.00/oz.

The US ten-year bond yield fell 2 basis points to 2.38% despite the rally in US stocks, because the German equivalent fell 4 basis points to 0.93%.

It was August Bank Holiday in the UK last night. The FTSE was open but didn’t move, while the LME was closed. Hence no base metals trading last night.

Iron ore was trading nonetheless, and fell US90c to US$89.20/t.

Brent crude rose US42c to US$102.71/bbl and West Texas was steady at US$93.40/bbl.

The SPI Overnight rose 4 points.

There’s a lot of data out in the US tonight, including two house price indices, consumer confidence and durable goods. That 2000 mark will be in focus.

Locally the result season grinds on today, although today sees mostly smaller names. Virtus Health ((VRT)) posts its maiden full-year and Scentre Group ((SCG)) posts its first independent numbers, while heavily shorted Boart Longyear ((BLY)) might be worth a watch.

Mind you, the most heavily shorted stock in the whole market, Atlas Iron ((AGO)), fell another 5.6% yesterday.
 

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