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The Overnight Report: Leaving The Building

Daily Market Reports | Nov 26 2014

This story features SANTOS LIMITED. For more info SHARE ANALYSIS: STO

By Greg Peel

The Dow lost two points while the S&P fell 0.1% to 2067 and the Nasdaq was flat.

Yesterday Bridge Street gave back half of what it gained on China-rate-cut-Monday, led down by the materials and energy sectors. Beijing may be upping the stimulus but in the cold hard light of day, iron ore and oil prices remain at multi-year lows. That story is writ large in the Aussie dollar, which over the past 24 hours has fallen 0.9% to US$0.8532 and is now considerably lower than it was ahead of Friday night’s rate cut rally.

Over in Europe there was modest relief last night on the first revision of Germany’s September quarter GDP. The revised result was unchanged at 0.1% growth but the June result was revised up to 0.1% contraction from a previous 0.2%. Wunderbar.

The late mail from economists had the US September quarter GDP being revised down to 3.3% from the last month’s first estimate of 3.5%, thus there was surprise when last night’s revision came in at 3.9%. Having suffered a 2.1% contraction in the weather-impacted first quarter – the slowest pace on record outside a recession – the US economy expanded by a net annualised rate of 4.25% in the second and third quarters – the best result since 2003.

One might expect US consumers to thus be quite upbeat heading into Christmas but this has not proven the case. Despite several consecutive months of plus 200k jobs growth, job concerns were the main factor behind a surprise fall in the Conference Board’s monthly consumer confidence index to 88.7 from 94.1 in October when economists had forecast 96.0.

This result, the lowest since June, took the wind out of Wall Street’s sails after a brief opening spurt on the GDP result last night, coming, as it has, in the busy period of the Thanksgiving-to-Christmas retail frenzy. There was not much joy on the home front either, with the Case-Shiller 20-city house price index posting its ninth straight month of slowdown, to 4.8% year on year growth in September from 5.1% in August. The FHFA price index of houses with Fannie/Freddie mortgages was flat from August to September, marking 4.5% year on year growth.

It must be noted, nonetheless, that early this year some commentators were starting to worry that historically low interest rates were driving another US housing bubble that would take us right back to 2008 again.

Just to round out the GDP growth offset, the Richmond Fed manufacturing index fell to 4 this month from 16 in October when economist were expecting 20.

The net result was a choppy session on Wall Street as investors weighed up the pros and cons. Volumes began to ease on Monday night and eased further last night, ahead of Thursday’s holiday. Volumes tonight will be negligible as exchanges and offices rapidly empty.

The US bond market last night weighed up the strong GDP result against the surprisingly weak consumer confidence number and decided the September quarter was then and November confidence is now. The ten-year yield fell 5 basis points to 2.26%. The US dollar index slipped 0.3% to 87.90 and gold was steady at US$1198.00/oz.

The SPI Overnight has closed up 6 points which may just be a tad ambitious when we look at commodity price movements overnight.

Spot iron ore has now fallen meaningfully into the sixties with a US$1.40 drop to US$68.60/t. Copper was down 1% on the LME in a session in which only aluminium managed to eke out a gain. And energy traders are becoming increasingly worried no significant production cuts will come from Thursday night’s OPEC meeting. West Texas crude fell US$1.79 to US$73.94/bbl to its lowest level since September 2010 and Brent fell US$1.39 to US$78.21/bbl.

Today in Australia we will see the first of the September quarter data releases as the picture builds towards next week’s GDP release, that of construction work done.

Another wave of data will hit Wall Street tonight just before everyone vacates the building. Durable goods orders, new and pending home sales, personal income and spending the Michigan Uni fortnightly consumer sentiment gauge are all due.

On the local stock front it’s another reasonably full day of AGMs while Santos ((STO)) will hold an investor day.

Rudi will appear on Sky Business this evening at 5.30pm.
 

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