The Overnight Report: Greenback Takes A Step Back

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By Greg Peel

The Dow closed down 17 points or 0.1% while the S&P lost 0.2% to 1964 and the Nasdaq fell 0.5%.

It’s not often we see the ASX200 down 20 the day after the Dow jumps 200 but as I have suggested previously, our two markets are currently decoupled. Two factors conspired to send Bridge Street south yesterday – the public holiday in half the country and particularly in NSW, which ensured thin trade, and the announcement by BHP Billiton ((BHP)) it intended to flood the market with low cost iron ore.

In the latter case it was 2% falls for BHP and its rival producer Rio Tinto ((RIO)) that sent the materials sector down 1.8%. Only consumer staples came close with a 0.5% drop, and some sectors closed in the green, leaving the index down a net 0.5%.

By contrast, Wall Street looked to extend Friday’s rally when it opened last night but immediately ran into the sellers. The Dow opened up 90 points but was down 80 at lunchtime before some order was restored.

There has been much debate over Friday’s US jobs report and just what signals it has sent. The fall in the unemployment rate to under 6% was welcomed but declared relatively meaningless by many pointing to a lack of workforce participation and to stagnant wage growth. The US has added four million jobs since employment bottomed after the GFC but average wages are 5% below what they were before the downturn began in 2007.

There was nevertheless more to contend with last night.

Wall Street closed on Friday believing the Hong Kong government was prepared to negotiate with the protesters but the weekend has seen the government gaining the upper hand. This time the chief executive set the deadline, and the protesters decided they better at least allow passage for those looking to get to and from work. It would now appear the government will simply wait until the protesters tire and lose hope.

The US citizen in Texas diagnosed with Ebola is now officially in a critical condition and being administered a test drug. Meanwhile the first case of Ebola has been announced in Europe, where a Spanish nurse who has not been to West Africa herself, but who has been treating a priest who has, has been diagnosed with the virus.

Germany announced a 5.7% fall in factory orders in August last night, following on from July’s 4.9% fall and far worse than expectations of a 2.5% drop. However while one would assume this news is negative for the euro, Friday night’s big euro sell-off on the flipside of the strong US jobs number and lengthy euro weakness brought in the bargain hunters who pushed the currency higher on short-covering. The result was a 1% fall in the US dollar index overnight to 85.74, against the recent tide.

The turnaround in the greenback prompted an inverse turnaround elsewhere. The Aussie dollar rallied back the 1% it lost on Friday night to US$0.8764. Gold recovered most of its previous fall with a US$16.90 gain to US$1207.90/oz. And commodity prices all saw similar jumps.

Aluminium and nickel were both up 0.5% on the LME, copper and lead rallied 1% and zinc 2%. Brent crude jumped US79c to US$93.00/bbl and West Texas added US76c to US$90.48/bbl.

Today is the last day of China’s Golden Week holiday and the spot iron ore price remains at US$79.80, albeit futures prices have fluctuated in the interim.

The one asset class that didn’t reverse was US bonds. The US ten-year yield failed to follow the lead of US stocks on Friday night and last night fell a further 2 basis points to 2.42%. With all the talk of a Fed rate rise, the ten-year is still stuck where it was before the most recent bout of anticipation emerged, and not far from its recent low.

Debate over the true message of the US jobs report, an ever weakening European economy and all else that is going on in the world, with Ebola now arguably the most worrying sleeper factor, is ensuring the safe haven trade of US Treasuries is alive and well.

The close on Wall Street has offered little guidance this morning, either directly or inversely. Dow 17,000 appears to be the current sticking point level, as the rally back last night to 16,991 attests. However the SPI Overnight has closed up 20 points or 0.4%, likely reflecting a combination of yesterday’s fall in the ASX200 when no one was around, and the rebound in commodity prices overnight.

The Bank of Japan will hold a policy meeting today, as will the RBA. The RBA will leave rates unchanged but may have something to say about developments in the Aussie this past month.

The Australian construction sector PMI is out today and Newcrest Mining ((NCM)) will hold an investor day.
 

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