The Overnight Report: Baby It’s A Wild World

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By Greg Peel

The Dow closed up 263 points or 1.5% while the S&P gained 1.2% to 2086 and the Nasdaq rose 1.2%.

Sell Everything

Surprisingly strong one day, abjectly weak the next. Trying to figure out the local market is a difficult task at present but we can note that despite all the volatility, we’re really not going anywhere. Wall Street is doing the same thing, before a backdrop of endless Fed rate rise discussion, and given last night’s performance we’ll no doubt see a bounce-back on Bridge Street today.

Yesterday featured red across all sectors, with only healthcare missing out on a substantial fall. Energy led the market down with a 4% drop, fuelled by Chevron’s announced sale of its Caltex ((CTX)) stake which saw that stock down 9%. But another big plunge in oil prices on Friday night exacerbated energy sector falls with Woodside Petroleum ((WPL)), for example, down 3%.

The materials sector fell 1% on ever weaker iron ore prices, with BHP Billiton ((BHP)), for example, down 2%, but commodities were not the only game on the day. The banks, the telco and utilities were all down over 1%, suggesting those yield stocks that were once again popular on Friday were not so popular yesterday. That includes BHP. And Woodside.

Is it because Joe Hockey is hinting he’s going to readdress superannuation tax concessions? Possibly, but that story will take a while to play out. End of quarter is another consideration, suggesting fund managers were looking to lock in profits after a strong run, but if we’re up today – the final day of the quarter — we’ll be citing “window dressing” to make fund managers look good on their quarterly returns.

Whatever the cause, it will all change again today.

We note also that as speculation intensifies for another RBA rate cut as early as next week, the Aussie is now back down to where it was before the Fed statement release a fortnight ago sparked a massive short-covering rally. The Aussie is down 1.4% over 24 hours to US$0.7641.

Never Give Up On China

The world has spent six years worrying about a hard landing in China, post the unprecedented stimulus package delivered by the PBoC in late 2008. But while China’s growth has slowed considerably over the period, as its economy has grown and matured, warnings of a crash have become less and less anxious. The government and central bank have continued to tweak policy to keep China ticking along, if no longer at breakneck speed.

Yesterday the PBoC was at it again. Warning that the US dollar could grow “too strong” and prompt capital flows out of China and elsewhere, as monetary easing by central banks across the globe drives up the greenback, the PBoC governor suggested there was “more room” to ease monetary policy in China if the economy remains soft and inflation continues to weaken.

With that, the Shanghai index shot up 2.6%.

The Europeans are also keen on a bit of stimulus from China, and they were also happy to see German consumer confidence leap up to a 14-year high. This fuelled a 1.8% rally in the DAX, and that sentiment then drifted across the Atlantic.

Wall Street Takes Off

Chinese stimulus and German confidence converged with news of a massive M&A deal in the US health sector last night. With quarter-end only a session away, Wall Street was in buying mode. Never mind that the US dollar – that which is being blamed for forecasts of net zero earnings growth in the quarter – jumped 0.7% to 98.01.

And never mind that personal spending grew by a measly 0.1% in the US in February, having fallen in January. Incomes rose a more healthy 0.4%, but most of that was directed into savings, which have hit their highest level since late 2012. The weather was dragged out yet again as an excuse, but the fact remains lower oil prices are not providing the consumer boost in the US everyone has been forecasting.

On a brighter note, US pending home sales rose 3.1% in February to their highest level since mid-2013.

The Dow powered back to regain the 18k mark last night, rallying almost 300 points before fading slightly at the close. As is the case with Bridge Street, Wall Street has been all over the shop without actually going anywhere.

The US bond market didn’t seem much interested though, with the ten-year yield merely ticking up one basis point to 1.96%.

Iron Ore Woes

The oil markets were steady, for once, last night, with West Texas up slightly to US$48.65/bbl and Brent up slightly to US$56.37/bbl from this time yesterday. There’s a lot going on in oil at present, but you could be forgiven for assuming news of pending Chinese stimulus would provide a boost to commodity prices in general. Well, not so.

Aluminium and copper managed half percent gains last night on the LME and zinc rose 1%, but the slide in nickel continues. Nickel is down another 3%, and tin chimed in last night with a 2.7% fall.

Iron ore fell US$1.20 to US$52.90/t, as post-GFC records continue to be broken.

Gold is down US$12.20 to US$1184.90/oz, on the back of the stronger US dollar.

Today

The SPI Overnight closed up 49 points or 0.8%.

It’ll be whiplash stuff today, and no doubt we’ll see those enigmatic yield stocks that were all on the nose yesterday smelling rosy today.

We’ll see local private sector credit data today, which will bring back into focus the “hard place” to the RBA’s weak economy “rock”, being rising housing investment. We’ll also see new home sales numbers.

The eurozone will see a flash estimate of March CPI tonight and no doubt will be expecting some long awaited improvement. The US will see a monthly measure of consumer confidence which may tell a sorry tale.

On the local stock front, Fairfax Media ((FXJ)) will hold a briefing today with regard its Domain property classifieds business.

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