The Overnight Report: Going Nowhere

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By Greg Peel

The Dow closed down 2 points while the S&P was flat at 1987 and the Nasdaq lost 0.1%.

It was a choppy session on Bridge Street yesterday albeit in a fairly narrow range. Having broken into six-year blue sky, the ASX200 will likely need to consolidate but next week sees the start of the earnings result season merging with the tail end of the resource sector production report season so there should be no lack of individual drivers of direction ahead.

The index spiked up around midday with the release of HSBC’s flash estimate of China’s July manufacturing PMI, which indicated a reading of 52.0, up from June’s 50.7 and ahead of 51.0 expectations. But many saw the spike as an opportunity to square up after the blue-sky run. The Aussie dollar responded in a similar fashion.

Earnings are the centre of attention in the US and as the busiest week of the season plays out, average earnings growth of around 5% is more so-so than supportive when the market PE is sitting at an above average 17.5x. And revenue growth of 3% remains a concern.

Amongst last night’s Dow stock reports, Caterpillar disappointed and its shares fell 3.1%. The heavy machinery company is seen as a global bellwether. Ford beat expectations and managed a 0.3% rise but outside of the Dow, rival General Motors fell short and its shares fell 4.5%, while Facebook was the star, having reported late on Wednesday, as its shares rose 5.2% and floated all social media boats on the day. Yellen must have been caught short.

The flash estimate of US July PMI suggested a fall to 56.3, but that’s from June’s four-year high of 57.3. More disappointing was an 8.1% fall in new home sales in June.

New single-family home sales in the first half of 2014 were down 4.3% on the same period in 2013. Builders point to a decline in mortgage applications, despite ongoing low interest rates, given still-tight lending standards among banks. Slowing momentum in housing construction going into the September quarter is not a good sign for those looking for 3% US GDP growth and confirmation of a rebound out of the weak March quarter.

There was a glimmer of hope for the eurozone last night as its flash estimate of July composite PMI (manufacturing and services) rose to 54.0 from June’s six-month low of 52.8. Most notably, the zone’s peripheral economies posted their best individual figures since 2007. On the other hand, those expecting an imminent UK rate rise were put back in their boxes last night as UK retail sales were shown to rise only a disappointing 0.1% in June.

Global investors are nevertheless focused on the big three economies – US, eurozone, China – and while US data last night were not so flash (albeit weekly new jobless claims fell to an eight year low), the positive PMI readings out of Europe and China were enough to stir up action in the safe havens. Having wallowed since the airliner crash, the US ten-year bond yield last night jumped 5 basis points to 2.51%. I suggested yesterday gold was looking a little vulnerable just above 1300 and sure enough, last night it fell US$10.90 to US$1293.60/oz.

The US dollar index ticked up by a tad once more, to 80.86, while the Aussie is off 0.3% at US$0.9419.

The same PMIs were also cited as the driver of a positive session for base metals, highlighted by a 1.7% jump for copper. Spot iron ore nevertheless fell US70c to US$93.60/t.

And oil markets also paid attention to the PMIs, but were overcome by a greater force. It is becoming clearer that while the EU is intent on stepping up sanctions against Russia alongside the US, energy-related sanctions are not in the mix. Brent crude fell US81c last night to US$107.22/bbl and West Texas fell US$1.00 to US$102.00/bbl.

The SPI Overnight rose 8 points.

The UK will publish its first estimate of June quarter GDP tonight, which should really stir up the rate rise nest, while Germany’s IFO business sentiment survey should provide another clue on the eurozone’s current state. Ditto durable goods orders in the US.

Locally, GUD Holdings ((GUD)) will report its full-year result today.
 

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