The Overnight Report: Big Fall For Big Blue

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By Greg Peel

The Dow fell 181 points or 1.0% while the S&P lost 0.4% to 2119 and the Nasdaq dropped 0.2%.

Top of the Range?

The ASX200 meandered its way northward yesterday without a lot of conviction to close almost at the 5700 mark, which has provided a ceiling for the past two months of turmoil. Given a weak session on Wall Street overnight, this may likely prove the case once more.

Materials was the only sector to meaningfully lose ground yesterday, while all other sectors closed flat to positive. Energy surprised with a slight recovery despite another fall in the oil price.

The minutes of the July RBA meeting, released yesterday, offered no real surprises. The central bank noted strength evident in the March quarter GDP did not appear to carry over into the June quarter, unemployment has not risen as expected but plenty of spare capacity suggests no threat of inflation, and while the Aussie had fallen against the greenback on ever lower commodity prices, it had not fallen as much against other trading partner currencies.

This appears to leave the door open for another rate cut, and the RBA will watch the data to come. Today’s June quarter CPI result will help to inform any a decision at the August meeting.

Barring any further bouts of macro uncertainty, the Australian market will likely drift until next month when corporate earnings reports begin to flow in earnest. The market is now treating Greece as a story from the past but the reality is there remains a risk of further volatility, particularly were the Tsipras government to be forced into a fresh general election.

Reality Check

I mentioned yesterday that now that the Dow has returned to above 18,000, the S&P to above 2100 and the Nasdaq to new all-time highs, commentators have once again been crying “overvaluation”. They have also – yet again – been suggesting a 10% pullback would be healthy for Wall Street, just as they have been, vainly, for the past three years.

Last night at least provided a slight glimmer of hope for those praying for a correction of respectable magnitude. Two big Dow names, IBM and United Technologies, posted earnings misses that saw their shares carted. IBM, the second heaviest weighting in the Dow average fell 6% and United Technologies fell 7%. These two stocks alone drove the bulk of the Dow’s 1% fall.

Weakness was also thus registered for the S&P500, while the Nasdaq slipped warily off its all-time high mark.

Once again there were no US economic data releases of note last night to prompt further Fed rate rise debate.

Having rallied steadily in the past three sessions, last night the US dollar slipped back on suspected profit-taking, falling 0.8% to 97.32.

Commodities

Weakness in the greenback could not inspire any positive moves in base metal markets, with prices continuing to drift off as the summer wind-down period begins for end-users. All metal prices were lower on the LME.

Spot iron ore managed a US20c gain to US$52.10/t.

Gold managed to claw back US$4.30 to US$1101.10/oz. Chances are, having spent so long time clinging to the 1200 mark, gold will now consolidate at the 1100 mark for a period.

The weaker greenback did nevertheless provide a reason to buy oil following five consecutive sessions of price declines. West Texas rose US37c to US$50.36/bbl and Brent rose US26c to US$56.91/bbl.

The weaker greenback also ended the Aussie’s drift lower, driving a 0.8% gain to US$0.7428.

Today

The SPI Overnight closed down 27 points or 0.5%.

As noted, Australia’s June quarter CPI data are due out today. Economists are looking for an increase in the annual headline rate to 1.7% from 1.3% in the March quarter.

RBA's Glenn Stevens will also be speaking in Sydney today.

This week’s US data drought ends tonight with existing home sales and house prices.

BHP Billiton ((BHP)) and its offspring South32 ((S32)) will report June quarter production numbers this morning, while Macquarie Group ((MQG)) will hold its AGM.

Rudi will appear on Sky Business twice today. First from 5.30-6.00pm on Market Moves and again between 7-8pm on Switzer TV.
 

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