The Overnight Report: Yellen Jitters

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By Greg Peel

The Dow closed down 23 points or 0.1% while the S&P was flat at 2109 and the Nasdaq gained 0.1%

Greek Epic

After a couple of soggy sessions, buying returned to the local market yesterday in concert with a rise on Wall Street as Greek fears eased. Buying was consistent across all sectors except for materials, which fell 0.3%.

The bottom line is, however, that Greek fears have not eased at all. No solution was reached on Friday other than to grant an extension of the same deal for another four months as long as Greece comes up with an acceptable reform agenda. Greece’s creditors are currently waiting for that envelope to arrive, and have decided to convene another meeting of the EU ministers tonight in case it turns out Greece’s suggested reforms are insufficient.

If they are insufficient, and agreement can’t be reached by Friday, then the extension is off the table and we may still be looking at a Grexit.

The euro was weaker last night as the world weighed up the risks once more. The US dollar index is thus up 0.2% to 94.58 and the Aussie has given back most of Friday’s short-covering gains to be 0.6% lower at US$0.7797.

Ceasefire Farce

It would seem Vladimir Putin smiled and shook hands with his German and French counterparts as they all agreed to a Ukraine ceasefire in Minsk a week ago, then went home to order more troops across the border. There has been no cessation of fighting and it would appear the pro-separatists are preparing for an attack on the port of Mariupol.

So now Europe and US are talking about increasing the level of sanctions against Russia. Just what Mario Draghi needs ahead of his QE assault beginning next month.

Meanwhile the German IFO business sentiment index released last night showed a rise to 106.8 from 106.7 last month but economists were pencilling in 107.7 on the basis of assumed QE excitement.

Oil Slumps Again

It was a wild ride in oil markets last night, beginning with a fall in prices on news that while the oil rig count continued to drop in the US last week, the pace of reduction is not as fast as the market was hoping for. Oil thus traded lower until the Nigerian energy minister opened his mouth.

Mr Alison-Madueke told the Financial Times OPEC members had discussed holding an emergency meeting to talk about the impact of ongoing low oil prices, which suggested to the market cracks might be beginning to appear in OPEC’s resolve. On that news, oil prices spiked up.

But it was soon pointed out that Nigeria doesn’t have that much sway, and unless the words are coming out of the mouth of the Saudi energy minister then they’re pretty much meaningless. There was no back-up to the meeting suggestion, and oil prices slumped once more. West Texas fell US$1.55 or 3% to US$49.26/bbl for its new April delivery front month while Brent, which is already trading as April, fell US$1.28 or 2% to US$58.80/bbl.

The fall in oil weighed on Wall Street, as did news US existing home sales fell by 4.9% in January to the slowest pace in nine months. The number is seasonally adjusted, so it’s not about winter snow.

Yellen Testimony

On the other hand, the Chicago Fed national activity index rose to plus 0.13 from minus 0.07 last month when plus 0.05 was expected, so not all the data the Fed is keeping an eye on are slipping.

To that end, over the next couple of nights Fed chair Janet Yellen will testify to the Senate Banking Committee, as she is obliged to do. Weakness on Wall Street last night, following a solid gain on Friday night, is assumed to be as much about oil as it is about traders squaring up ahead of anything unexpected Yellen might come up with regarding interest rate rise timing.   

In the meantime US bonds were sought again last night, which was less about expectations for Fed policy and more about the fact the Greek drama is still in the balance. The ten-year yield fell 7 basis points to 2.06%.

Metal Daze

The Chinese are back tomorrow but there was a whole lotta nothing much going on in metals last night. Nickel rose 1% but all other LME metals were little moved.

Iron ore remains unchanged at US$63.40/t.

Gold is also steady at US$1202.20/oz.

Today

The seemingly ever positive SPI Overnight futures are up 15 points or 0.2%.

The eurozone will release inflation numbers tonight while consumer confidence will be closely watched in the US.

BHP Billiton ((BHP)) is the big ticket reporter today in the local earnings season, along with Oil Search ((OSH)), QBE Insurance ((QBE)) and a parade of others.
 

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