The Overnight Report: All The Wild Horses

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By Greg Peel

The Dow closed down 48 points or 0.3% while the S&P lost 0.6% to 2018 as the Nasdaq fell 0.8%.

Late Buying

The lead out of Wall Street on Tuesday night was not such much weak as indifferent, as US earnings reports fail to either inspire or spark fear on a net basis and data releases are now less pressing given downgraded Fed expectations. If markets can’t find any particular reason to go up, they tend to go down until a reason emerges.

Bridge Street thus drifted off from the open yesterday, with a little help from lower commodity prices. BHP Billiton ((BHP)) posted a quarterly report showing strong iron ore volume growth, but met broker expectations. The real test came at lunch time when the ASX200 drifted below the 5200 level – previously strong resistance, now in theory strong support.

The index reached 5195 but when traders came back from the sandwich queue, the technical trade kicked in and the index began to drift back up again, confirming 5200 support. Then just before 3pm someone obviously put in a big buy order, focused on the resources sectors, and we rallied into the green to finish the session up 12 points.

The positive close was all about a 1.3% gain for materials and a 1.2% gain for energy, with no other sector standing out. The banks remained stagnant as investors continue to mull over the impact of the government’s near wholesale adoption of the Murray Inquiry.

Red ones go faster

Wall Street’s session began last night as another dreary drift, offering little conviction. Traders had strolled past a line-up of gleaming sports cars and grand tourers outside the NYSE looking as expensive as they are, ensuring the focus of the day was on the partial float of Ferrari for the simple reason that hey, it’s Ferrari, and there was nothing much else to draw attention.

The IPO was well received for the simple reason that hey, it’s Ferrari. Meanwhile General Motors posted a solid result and enjoyed a rally, as did Boeing (Dow).

There were no major data releases on the day, and otherwise the only talking point was a trashing of pharma company Valeant, after one notable fund manager accused the company of being engaged in fraudulent, Enron-style booking of revenues that really aren’t. Another major fund manager and Valeant shareholder responded by buying another 2 million shares at 40% down on the day, and the company itself issued a categorical denial.

It probably didn’t help the accuser’s case that the fund in question is a well known short-side player. Presumably Citron Research wasn’t in buying as the stock rallied back to close the session flat, as that might look a little dodgy.

But while the Valeant story may prove little more than a distraction the healthcare/biotech market is so on edge at the moment, following threats of increased regulation, that the sectors were sold down anyway, taking the Nasdaq down 0.8%. In the last half hour the Dow was dead flat, before late selling led to a 0.3% drop.

As noted, markets tend to go down if there’s no real reason to go up.

Commodities

There has be no announcement forthcoming from China on any new stimulus measures which might have been expected following a run of weak data, but it’s probably the case Beijing is saving up its firepower for next week’s Plenary Session in which the government will outline its latest five-year plan. Any or all of interest rate and RRR cuts, renminbi devaluation and targeted fiscal stimulus is anticipated.

Until that time it seems LME traders can’t find any reason to buy either, so again we see a market going down for lack of any reason to go up. Aluminium, lead and zinc all fell 2-3% last night and nickel and tin fell 0.5%, with copper only slightly lower.

Iron ore fell another US20c to US$51.90/t.

The oils were weaker again, as WTI rolled into a new December delivery front month. Weekly US crude supplies showed a bigger than expected jump and while hopes that a meeting in Vienna between OPEC members and others, such as Russia and Mexico, might lead to production cuts, it seems that’s not going to be the case.

West Texas fell US$1.12 to US$45.17/bbl and Brent fell US86c to US$47.87/bbl.

With Fed rate rise expectations being pushed out in time, gold had rallied towards the 1200 mark on expectations the US dollar would now give up some of its recent gains. But the greenback has failed to come to the party, mostly because it is only one of the major currencies supported by easy monetary policy. The ECB meets tonight and there is much anticipation with regard extended QE.

Traders appear to be losing patience, as gold fell US$9.60 to US$1166.80/oz last night. The US dollar index is up 0.1% at 95.03.

As commodity prices continue to drift lower, so too does the Aussie. It’s down 0.7% at US$0.7211.

Today

The SPI Overnight is down a rather imposing 36 points or 0.7%, which if accurate would once again take the ASX200 down to test support at 5200.

NAB will release a September quarter summary of its business confidence and conditions survey today, while tonight the ECB meets and the US sees existing home sales, house prices and the Chicago Fed national activity index.

On the local stock front, there are quite a few AGMs being held today alongside production reports releases from the likes of South32 ((S32)), while Wesfarmers ((WES)) will report September quarter sales.

Rudi will appear twice on Sky Business today. First at noon (Lunch Money) then again on Switzer TV, between 7-8pm.
 

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