The Overnight Report: Hesitation At The Top

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By Greg Peel

The Dow closed up 61 points or 0.4% while the S&P gained 0.5% to 1983 and the Nasdaq rose 0.7%.

I suggested before yesterday’s trade on Bridge Street that it might be another quiet, wait and watch session, given ongoing uncertainty over the Ukraine disaster and an approaching earnings season. I didn’t quite expect it to flat-line all day, but that’s about all we saw. I also suggested that while RBA governor Glenn Stevens might be speaking at a luncheon, we could not assume it was a forum for any interest rate bombshells, and indeed he made no mention.

The bodies of the victims are now making their way to Amsterdam and the black boxes have been handed over, but the blame-game continues and while Putin has agreed to use his influence over the separatists, nothing appears to actually be happening. The international investigation team will hopefully be able to get on with its work, but there were no new developments last night to affect financial markets.

US inflation was in the spotlight on Wall Street, with much talk over the past month or more of an inflation threat due to the Fed’s easy monetary policy, and a risk the central bank must move quickly to raise rates. As it was, last night’s June data were benign. Headline CPI rose 0.3% having risen 0.4% in May, and most of that was due to higher energy prices on a flow-through from geopolitical premiums (remember Iraq?).

The annual headline CPI is unchanged from May at 2.1% while the core, which does not include energy, fell to 1.9% in June from 2.0% in May.

Sales of existing homes posted their third monthly gain, rising 2.6% to match the level last seen in October. Prices of houses under Fannie/Freddie mortgages rose 0.4% in May to be up 5.5% year on year.

The Richmond Fed manufacturing index has risen to 7 in July from 3 in June when economists had expected a reading of 5.

So all up last night’s US economic news was to the positive, while the major earnings reports of the session were not so. Dow stocks Coca-Cola (down 2.9%) and McDonalds (down 1.3%) both disappointed. However at this early stage, earnings growth is running at 7.0% against a forecast going into the season of 6.6%. Revenue growth, on the other hand, is once again sluggish.

Apple is a case in point, which reported after the bell. It posted a beat on earnings and a miss on revenue and its shares are down 0.7% in the after-market. But Microsoft (Dow) went the other way, beating on revenues and missing on earnings, although the earnings miss was blamed on the company’s Nokia acquisition. Microsoft shares are up 1.6% in the after-market.

Wall Street tried to press on to new highs last night for both the Dow and S&P, with the Dow up 82 points at its peak, but drifted towards the close as the geopolitical cloud still hovers.

The US dollar index rose 0.3% last night to 80.78 as the euro hit a one-year low against the greenback, but the Aussie misbehaved and also rose, by 0.2% to US$0.9394, ahead of today’s CPI release. Gold fell US$4.80 to US$1307.50/oz and while stock markets tentatively try to move on from the Ukraine situation, the US ten-year yield is off another basis point to 2.47%.

Base metal prices continued to react to the lingering possibility of increased sanctions against Russia, and last night’s buying was dominated by commodity fund activity. Aluminium, nickel and zinc all rose 1% while copper edged up 0.3%.

Thoughts of a return to triple digits continue to fade for iron ore which again fell US60c last night, to US$95.40/t.

West Texas Intermediate has rolled into the new September delivery front month contract and in so doing has dropped around two dollars. Last night saw a fall of US79c to US$102.07/bbl while September Brent fell US79c to US$106.97/bbl. We recall that at the height of the WTI surplus a few years ago, the spread between the major oils was some US$27.

The SPI Overnight rose 17 points or 0.3%.

Will the ASX 200 have another go-nowhere day today? It will depend on the data and corporate reports. The June quarter CPI is out today and economists are expecting a rise to 3.1% on the headline, up from 2.9% in March, and 2.8% on the trimmed mean (core), up from 2.6%.

BHP Billiton ((BHP)) will release its June quarter production report today, as will Sandfire Resources ((SFR)) and Senex Energy ((SXY)). ANZ Bank ((ANZ)) will provide an update on its Asian operations while Sims Metal management ((SGM)) will offer a strategic review.

Rudi will appear on Sky Business at 5.30pm.
 

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