By Greg Peel

The Dow closed up 65 points or 0.4% while the S&P gained 0.4% to 1879 and the Nasdaq rose 0.8%.

It was a quiet day on Bridge Street yesterday as expected, with the ASX 200 adjusting up 25 points for its missed Wall Street session and staying there. Things may hot up a little more today when the local CPI release meets HSBC’s flash estimate of China’s April manufacturing PMI.

Wall Street began the morning in rolling buy-mode and pushed the Dow up 116 points before 2pm. A gain of 127 would have put the average at a new all-time high once more, but the buying quietly faded into the afternoon. The S&P still needs another 1.4% gain to hit its previous high which is evidence of the switch into the more solid, if not stolid, blue chip names in the recent correction – many of which reside in the Dow – and out of a lot of the momentum high-flyers that have at least some influence on the S&P. The Nasdaq is nevertheless rapidly recovering.

Netflix was one such high-flyer, who saw its shares come off its own high by 20% before the correction found a bottom. Having reported after the bell on Monday night, Netflix shares gained 7% last night. A couple of those solid Dow blue chips did not report so well last night, with AT&T down 2% having posted after the bell and McDonalds falling 0.4% during the day-session.

McDonalds watchers fear there might be an insidious trend among American consumers towards healthier eating. Has someone told the NSA? Maccas has a fizzy drink deal with Coke, which is also experiencing a local sales downtrend (as is its affiliate in Australia).

On the economic front, the Richmond Fed manufacturing index rebounded solidly in April to plus 7 from minus 7 in March, beating expectations of plus 2. The March result had been a disappointment as it seemed to counter the snow argument, so weather-excuse supporters will now be happy.

March did, admittedly, start under snow before the thaw began, which is the excuse still being used by realtors. Existing home sales fell 0.2% in March to mark the slowest pace of sales since June 2012. Sales of existing homes nevertheless peaked and began trending down from the last US summer when rising mortgage costs met a lack of inventory and already inflated prices.

Prices of houses with Fannie/Freddie mortgages nonetheless rose 0.6% in February (seasonally adjusted, but it was a particularly bad season weather-wise) for a 6.9% year on year gain. But in another case of initial small sample surveys being no less than completely misleading before more widespread results are in, the FHFA revised down its earlier January suggestion of a 0.5% gain to a 0.4% fall.

So once again the economic data are not really painting a picture of an undeniably healthy US recovery and we’ll have to wait till we can shake off the snow man in the data before things are more clear. Nor are earnings results off to the races (except maybe Harley Davidson, which saw a 6% gain on its result last night), although there are plenty still to come. At the end of the day potential new all-time highs are all about the Fed, and little else.

Movements amongst the currencies were tepid last night, with the US dollar index falling 0.1% to 79.89 and the Aussie steady at US$0.9328. Despite Veep Joe Biden threatening further sanctions against Russia if it does not withdraw its troops from the Ukraine border, gold fell US$6.00 to US$1283.60/oz and the US ten-year yield is again steady at 2.72%.

Nor did the energy markets shake in their boots, with Brent down US43c to US$109.44/bbl. West Texas fell US$1.84 to US$101.81/bbl, but that was more to do with the expiry of the May delivery contract.

Nickel continued on its merry way when the LME reopened last night, rising 2.4%. With the exception of unpopular copper, the other metals all posted 1% gains to factor in an expected tick up in the Chinese PMI today. It may not be pretty if this doesn’t come to pass. Iron ore fell another US80c to US$112.50/t.

The SPI Overnight rose 22 points or 0.4%.

Another 22 points would, funnily enough, take us up to resistance at 5500 once more and the previous post-GFC high of 5503, marked just before the Nasdaq hiccup. Our own CPI and/or the Chinese manufacturing number, due today, may yet have something to say about it.

There’ll also be another raft of quarterly production reports from the miners today to consider, with Newcrest ((NCM)), Mincor ((MCR)), Panoramic ((PAN)) and Perseus ((PRU)) in the frame.

Tonight will also see flash PMI estimates for the eurozone and US.

Rudi will appear on Sky Business at 5.30pm.
 

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By Greg Peel

The Dow rose 162 points or 1.0% while the S&P gained 1.0% to 1862 (to be back in the black for the year) and the Nasdaq rebounded a further 1.3%.

Bridge Street would have needed a moment or two to take in yesterday’s Chinese data release but in the end decided it was more positive than negative. Eventually there was a kick towards a more positive close, and the ASX 200 is once again sitting just above 5400.

China’s March quarter GDP came in at 7.4%, conveniently beating 7.3% forecasts. Industrial production for the month of March rose 8.8% (year on year) compared to 8.6% average growth over January-February. Retail sales rose 12.2% compared to 11.8%, while fixed asset investment fell to 17.6% from 17.9%.

It’s a bit of a mixed bag. The ongoing decline in fixed asset investment growth, which includes infrastructure projects, is not a great sign for those selling raw materials to China. Nor is a 25.2% year on year fall in new floor space under construction, which came out of the quarterly numbers. But infrastructure is one area at which Beijing can target any further stimulus if it sees fit, as is social housing. The fall in floor space is a two-edged sword, suggesting less demand for construction raw materials but an easing in China’s worrying property bubble.

In the end – fair to muddling. A stronger GDP would have been more positive and a weaker GDP would have implied fresh stimulus so might have been more positive as well.

Wall Street decided the numbers were okay and opened strongly from the bell. The materials sector in particular was in the spotlight, following a positive response from the Chinese data on the LME. All base metals rose around 1%.

Traders also liked the earnings result from Yahoo, released in the previous after-market, and its shares rose 6.3%. Intel’s (Dow) earnings weren’t bad either, and it rose 0.6%.

Mining was also in focus with regard the US industrial production numbers. Production rose 0.7% in March, beating expectations of 0.5%. February’s result was revised up to 1.2% from an initial 0.7%. These results seem at odds with the expectation that February was weak due to heavy snow and March offered up a recovery. But it makes sense. Aside from mining output increasing 9.6% in the March quarter (I suppose it doesn’t snow much a mile underground), utilities output jumped 17.9% as everyone tried to stay warm.

US housing starts played more to the weather script. They rose 2.8% in March to mark the fastest pace in three months, and clearly it’s difficult to build a house on ground under six feet of snow. Economists were nevertheless looking for a bit more.

As half the country sat under a blanket of snow, only eight of the twelve Fed regions were able to report expanding economic activity from late January to early March (the Fed operates on six-weekly periods). From early March to mid-April, that number has risen to ten, according to the Fed’s Beige Book.

But the real Fed impact in last night’s session came later in the day. Fed chair Janet Yellen made a speech to the Economic Club of New York and said, in not so many words, “Granny Yellen would never let you lose money darling”.

Yellen suggested that full employment and stable prices are “tantalisingly” on the horizon. While not specifically referring to when the Fed might rate rates, she suggested this employment/prices goal could be reached by end-2016. Why two years plus is a tantalising horizon is debatable, but it’s a big change from the “six months from the end of tapering” call Yellen made earlier this year, and has regretted ever since, that suggested the first interest rate rise would be around mid-2015.

To commentators, this new guidance is about as dovish as it could be. Furthermore, and most disturbingly, Yellen suggested the Fed’s new forward guidance can serve as an “automatic stabiliser” that helps investors from overreacting to the “twists and turns” the economy may take. In reality, this is just a verbal confirmation of the longstanding “Bernanke Put”, but I don’t think I’d want to be America’s biggest creditor – China – looking on at a central bank that is prepared to manipulate capital markets to whatever degree it takes to make sure Americans don’t suffer, and admit it.

Wall Street loved it. Or at least, the funny money junkies on Wall Street loved it. Plenty of others are incredulous, and in between are those who simply say that rightly or wrongly, “you can’t fight the Fed”. Hence stock prices must go up. At least until the Ponzi scheme is revealed for what it is.

For others, the truth lies in earnings. Recent volatility on Wall Street has provided cause to step aside and wait for the earnings picture to emerge and offer a more realistic gauge of US economic performance. After the bell last night, IBM (Dow) reported in line and its shares have fallen 4%, while Google posted a miss and its shares are down 2.8%.

The other issue hanging over US stock markets is the question of why US bond yields remain so low (and why the yield curve is flattening) and the US dollar stagnant. Both should be rising (and the curve should be steepening) on economic recovery-driven tapering. The bond market is not yet sold on a US recovery. The ten-year yield was little moved a 2.64% last night and the US dollar index remained steady at 79.83.

Gold was also steady at US$1302.50/oz and the Aussie is 0.1% higher at US$0.9370 after the so-so Chinese data release.

Spot iron ore fell US90c to US$116.20/t. The oils were little moved, with Brent at US$109.56/bbl and West Texas at US$103.82/bbl.

The SPI Overnight rose 17 points or 0.3%.

Today the local market sees March quarter production reports from Santos ((STO)), Woodside Petroleum ((WPL)) and Mt Gibson Iron ((MGX)). NAB will provide a quarterly summary of business confidence. By lunchtime there’ll be tumbleweeds rolling down Bridge Street.

Rudi will appear on Sky Business' Lunch Money at noon and later again on Switzer TV 7-8pm.

Have a happy and safe Easter.
 

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By Greg Peel

The Dow closed up 89 points or 0.6% while the S&P gained 0.7% to 1842 and the Nasdaq finished up 0.4%.

As expected, there was nothing in yesterday’s RBA minutes that shed further light beyond Glenn Stevens’ statement earlier in the month. The cash rate remains appropriate at this point although the central bank still sees unemployment edging a little higher from here. Mind you, the meeting was held before the release of the March jobs numbers which showed unemployment falling to 5.8% from 6.0%.

And consistent with the statement, there was no longer any attempt to talk down the Aussie. If the RBA feels its next move will be a hike rather than another cut, it’s a bit hard to dupe forex markets into selling the currency. Leave that to Mr Draghi.

As was also expected, the ASX 200 rebounded yesterday after Monday’s rolling sell-off using the bounce on Wall Street as the lead. Wall Street’s bounce was none too convincing and nor was yesterday’s recovery on Bridge Street, which lost a bit of momentum in the afternoon. Both markets are currently experiencing thin holiday volumes.

Nowhere was this more apparent than on Wall Street last night. In short, the Dow was up 99 points at 10am, down 110 points at 1pm, and closed at 4pm up 89.

Early strength was attributed to positive earnings results from Dow components Coca-Cola, which finished up 3.7% on the day, and Johnson & Johnson (2.1%). But economic data was mixed. April housing market sentiment rose to 47 from 46 in March when economists were hoping for 50 (neutral sentiment). The Empire State manufacturing index fell to 1.3 from 5.6 when 8.0 was the target (zero is neutral). And the CPI rose 0.2% in March on both the headline and core readings when 0.1% was expected.

The core CPI is up 1.7% over twelve months and remains below the Fed’s 2.0% comfort level, but now appears to be on the rise following years of stagnation. This is not good for those wanting the Fed to temper its tightening, but weaker than expected economic data go some way to supporting a less aggressive tapering program.

A report then hit the wires that Russian troops had been spotted inside the Ukrainian border and that Ukrainian troops had stormed an airport in the east of the country and ejected pro-Russian protesters. The White House accused the Kremlin of provoking Ukraine into confrontation. US stocks then tumbled.

But – and this is a big but – if geopolitics was the reason for sudden panic in stocks one would safely presume a counter rush into safe havens. But the US ten-year bond yield managed only to fall one basis point to 2.63% and gold crashed US$24.90 to US$1302.40/oz.

What the hell is going on in gold? Trying to figure that one out will send you to an early grave. The suggestion is traders used US dollar strength as an excuse to take profits ahead of the Easter long weekend. The dollar index was up a whopping 0.08% to 79.80.

Meanwhile back in the stock market, the lunchtime nadir saw the Nasdaq down 1.8% on the day, supporting my suggestion yesterday that the late rally back on Monday night looked unconvincing. But at that point the high-tech index was down almost 10% from its high -- the “definition” of a correction. And at that point the buyers said that’ll do. The bungee rope reached full stretch.

Over in London, base metal traders also worried about the Ukraine but nonetheless decided it was wise to square up ahead of today’s China GDP release. Copper and aluminium bore the brunt with 1.5% falls, while the others were less impacted.

Having supposedly worried about the Ukraine on Monday night, the oils fell back last night, just to confuse the issue, although it was expiry day for Brent. It fell US33c to US$108.74 and West Texas fell US30c to US$103.75/bbl.

Spot iron ore rose US10c to US$117.10/t.

When the RBA minutes were released yesterday the Aussie held steady just under 94 but is now down 0.7% to US$0.9361 over 24 hours. Forex traders point to the big fall in gold and the fall in copper as influential, and realistically traders (who are now net long according to US futures data, rather than net short as they were before the recent spike) probably also decided it safer to square up ahead of China’s GDP.

The SPI Overnight rose 9 points.

So all eyes will be on Beijing today with fingers crossed for the GDP result. Expectations are for the lowest growth rate in a couple of decades at 7.3%. Mind you, higher would be good, but lower would elicit assumptions of more stimulus so might be good too. Who knows these days?

Beijing will also deliver a monthly data dump of industrial production, retail sales and fixed asset numbers. Ahead of those releases, BHP Billiton ((BHP)), Fortescue Metals ((FMG)) and Iluka Resources ((ILU)) will report quarterly production numbers.

Tonight in the US sees the Fed Beige Book along with important housing start and industrial production data. The numbers of market participants will be starting to thin on both sides of the Pacific, and tomorrow Bridge Street will be a ghost town.

Rudi will appear on Sky Business at 5.30pm.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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