The Overnight Report: Thanks, I’m Off

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By Greg Peel

The Dow closed up 12 points while the S&P gained 0.3% to 2072 and the Nasdaq rose 0.6%, all on minimal volume.

Well I never saw that coming. A benign session on Wall Street, iron ore in the sixties, copper and oil sold down further and the ASX200 goes up sixty points. Funny old game this. No doubt there was plenty of short-covering involved as we shot out of the blocks from the opening bell.

That rapid take-off points back to RBA deputy governor Philip Lowe’s speech at a dinner the night before, in which he again bemoaned a too-high Aussie dollar. The Australian economy would be in quite healthy shape, Lowe insisted, if only we could get the currency down. Specifically it is impacting on our terms of trade – the Aussie went up as commodity prices rose but has not come down as they have plummeted – and on our wages, which would not look so restrictively high in global comparison terms if the Aussie were where it should be.

The question is, does the RBA intend to actually do something about it? It can’t cut the interest rate again, not with a property investment bubble in swing, so it needs to be more direct, just as the Fed did, the BoE has done, and the ECB, BoJ and PBoC are doing.

Attention then swings to the upcoming Financial Systems Inquiry report, aka the Murray Report, which is expected to force the big banks to hold more capital. Fear over this report’s ramifications is now easing, with expectations growing the banks will be given plenty of time to conform, and that likely explains yesterday’s 1.3% gain for the sector. But there’s also the matter of macro-prudential controls, which APRA would apply, intended to curb the aforementioned bubble. If they are imposed as expected, raising the cost of investment loans, could the RBA then cut its cash rate further?

Watch this space.

The Aussie did take a big dive on the back of Lowe’s speech, all the way down to 84.80, but has only risen since and is actually up 0.2% over 24 hours to US$0.8551.

It didn’t seem to bother Bridge Street yesterday that Australian September quarter construction work done showed a fall of 2.2% to be down 5.1% for the year. Mining-related construction fell 3.2% to be 12.1% lower – okay, we expected that – and building work fell 1.0% but is up 5.8%. Most notably, the residential segment fell 1.6% in the quarter.

And it didn’t much perturb Wall Street when a raft of negative data was released last night, mostly because there were only a few skeletons and tumbleweeds left to respond.

On face value, new durable goods orders rose 0.4% in October after falling 0.9% in September, but take out a big burst of military spending and orders actually fell 0.9% to mark the biggest monthly drop in non-military orders since December last.

New home sales rose 0.7% in October but only from a September level that was revised down, while pending home sales fell 1.1%. Personal spending rose only 0.2% in October, missing forecasts of 0.4%, and incomes rose only 0.2%, also missing 0.4% expectations. The final fortnightly Michigan Uni consumer sentiment index fell to 88.8 from 89.4 two weeks ago when a rise to 90.2 was forecast.

Put them together, and last night’s personal spending number, last night’s Michigan Uni and Tuesday night’s Conference Board consumer confidence gauges are all weaker than expected, heading into “Black Friday”. Black Friday in the US is akin to Boxing Day in Australia in which everyone queues up to be trampled in the rush for bargains at the sales. It’s just that Black Friday follows Thanksgiving and not Christmas, thus kicking off the US Christmas spending frenzy. It is so called because it is traditionally the day US retailer profit and loss statements move into “the black”.

Commentators have now mostly dismissed Black Friday’s significance, noting many stores now open on Thanksgiving Day anyway and even more start offering bargains in the days before. But either way, the consumer data do little to boost expectations for the US economy.

The US bond market paid attention, even if the stock market was otherwise preoccupied. The ten-year bond yield fell 3 basis points to 2.23%, while the US dollar index is down 0.3% to 87.64. Gold is again steady at US$1197.40/oz.

Over on the LME there were no moves in excess of 1% last night, but aluminium, lead, tin and zinc were up while copper and nickel were down.

The spot iron ore price is down another US60c to US$68.00/t.

Ahead of tonight’s critical OPEC meeting the oils were a little lower, with West Texas down US22c to US$73.72/bbl and Brent down US43c to US$77.78/bbl.

The SPI Overnight closed unchanged. Given it closed up 6 points yesterday morning and the index rallied 60, futures traders probably decided to take a back seat last night.

On Monday the ASX200 rose 50 points, then on Tuesday gave back half of that, then rose 60 points yesterday, so presumably it will fall 30 today. But don’t listen to me, clearly I couldn’t even call a cab at the moment.

Wall Street will be closed tonight for Thanksgiving. Tonight’s aforementioned OPEC meeting in Vienna is the most highly anticipated in years.

Today locally sees the all-important quarterly private sector capex and capex intentions numbers, to which the RBA pays close attention.

Get out your pitchforks – Woolworths ((WOW)) is holding its AGM today, as are several other companies.

Rudi will appear on Sky Business at noon and later, for the final time in 2014, on Switzer TV, between 7-8pm.
 

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