The Overnight Report: Waiting Impatiently

This story features WOOLWORTHS GROUP LIMITED. For more info SHARE ANALYSIS: WOW

By Greg Peel

The Dow closed down 128 points or 0.7% while the S&P fell 0.3% to 2074 as the Nasdaq managed a 0.2% gain.

Nuts of May

“Members noted that the current setting of monetary policy had been accommodative for some time and that the recent reduction in the cash rate would provide some further support to the economy. They also acknowledged that a lower exchange rate would help achieve balanced growth in the economy. Nonetheless, on the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge.”

And on that note, the ASX200 rallied 66 points yesterday, before settling up 44. All sectors finished in the green bar healthcare. To underscore the connection between the above “confirmation” the RBA will cut again, and the subsequent rush into yield, one need look no further than the energy sector. On Monday energy stocks fell heavily on lower oil prices. On Monday night, further falls in oil prices were even more dramatic, yet yesterday the energy sector was the second strongest performing sector with a 1.5% gain, with only the telco (up 1.7%) more highly sought after.

Why? Because energy stocks now pay dividends, and in the case of Woodside Petroleum, very solid dividends. Never mind that lower oil prices put those dividends at risk.

Interestingly nonetheless, forex traders appeared to focus on a different paragraph in the RBA minutes, released yesterday.

“In considering whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change.”

This statement sent the Aussie higher, as it dismisses any assumption of the next rate cut coming consecutively in April. The Aussie shot up on this news but clearly as a result of some short-covering, as pretty soon it was back again. Indeed, this morning it is 0.4% lower over 24 hours at US$0.7613. Economists had already assumed May was more likely for the RBA’s follow up than April, given CPI data will be released in between, and they have not changed their minds on the strength of yesterday’s minutes.

No Tit for Tat

The Bank of Japan made no changes in policy at yesterday’s meeting, despite the competition now provided by ECB QE. The BoJ still believes Japan’s inflation rate can rise to 2% over time, despite warning it will probably fall to zero in the months ahead.

The eurozone’s CPI for February showed minus 0.3% year on year, up from minus 0.6% in January. The unemployment rate fell to 11.2% from 11.3%. These numbers, while mildly encouraging, are pre-QE. The more up to date ZEW investor survey for March confirmed confidence remains elevated.

Wall Street Roundabout

In the twelve trading sessions of March to date, the Dow has moved by triple digits in nine of them – four up, and as of last night, five down. And always in opposite directions. No one quite knows why the Dow was down again last night having been up strongly on Monday night, other than the FOMC has now gone into the bunker and that’s as good a reason as any to square up.

Last night’s only major US data release was February housing starts and they were a little weak, but quickly blamed on February snow. Otherwise, the debate still rages as to whether the Fed will remove the word “patient” from its monetary policy statement, and 69% of respondents to a CNBC survey believe it will. As to what that means exactly, again, no one’s quite sure, but the same poll is tipping the first rate rise in August.

The US bond market seems none to perturbed, knocking 4 basis points off the ten-year yield last night to 2.04%. It is the ECB most impacting on US rates at present, not the Fed. The US dollar index is steady at 99.65.

Commodity Slump

The US move to summer time even as the snow still falls in some parts creates a brief window in which the LME is still open on the release of the Fed statement, before the UK also moves to summer time. But last night metal traders were not so concerned about monetary policy as they were about simple lack of demand. Base metals are finding it hard to hold up as oil falls.

Last night copper, lead, nickel and tin all fell 1% or more, with only aluminium offering some resistance.

Iron ore fell US50c to US$57.60/t.

The oils were down again, with West Texas falling US69c to US$43.13/bbl and Brent falling US43c to US$53.50/bbl for the new May delivery front month.

Gold is down US$6.00 at US$1148.70/oz.

Today

The SPI Overnight closed up one point.

This suggests Bridge Street will hang on to yesterday’s gains as we await tonight’s Fed decision, although further falls in the prices of oil and iron ore, and copper and gold, may apply some pressure beyond dreams of another RBA rate cut.

Woolworths ((WOW)) will go ex this morning, amongst a group of ex-ers.

Rudi will appear on Sky Business, 5.30-6.00pm and he will host Your Money, Your Call between 8-9pm tonight on the same channel.
 

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