By Greg Peel
The Dow closed down 7 points, while the S&P gained a point to 1387 and the Nasdaq was flat.
"Members considered that further easing may be appropriate in the period ahead. However, at this meeting, with prices data for the September quarter slightly higher than expected and recent information on the world economy slightly more positive, the Board judged that the stance of monetary policy was appropriate for the time being."
The RBA is a keen proponent of the subtle hint, but rarely do hints come with all the subtlety of a Centurion tank as this one does. Economists are convinced "further easing" means December.
Mind you, when all the economist ducks line up in a row, they're most often wrong, and the "period ahead" may yet take us to February (noting there is no meeting in January). Presumably by the December policy meeting we'll know whether Greece has been given its bail-out tranche and we might even have a bail-out trigger for Spain. What we won't have, one presumes, is resolution on the fiscal cliff, although we may be able to note some progress. The point is, nevertheless, that the offshore situation will possibly be up in the air.
As for the domestic economy, by the December meeting we'll have seen all the September quarter data that feed into the GDP result, but not the GDP result itself. That will come out the next day. But presumably the RBA will have a pretty good picture at that stage and will be able to assess whether there are yet any signs of Australia's economic driving force rolling over from mining and into housing, or any other non-mining sector for that matter. If mining is easing off and non-mining is still sliding, a rate cut is probably on the cards. Unfortunately, a cut will have no meaningful effect on the Aussie dollar.
Speaking of Greek bail-out tranches, the eurozone finance ministers are still in discussions as I write and while zone president Jean-Claude Juncker has expressed confidence in an answer being reached this morning, the issue of how to deal with Greece's two-year extension remains a stumbling block.
Yesterday morning (our time) Moody's downgraded France to Aa1 from Aaa and as has become the norm this past year with regard to ratings agency downgrades, nobody blinked. A downgrade has been threatened for some time and the French economy is being dragged down into the eurozone mire. The North is no longer offsetting the issues in the South, as evidenced by a 1.1% GDP contraction for the Netherlands in the September quarter as Germany, too, struggles against the tide.
The euro thus remains poised at this point, albeit commentators suggest there will be neither a big sell-off if Greece doesn't get its tranche tonight nor a big rally if it does. The problems are ongoing (on and on and on and on...).
The good news is that the positive US housing data keep on rolling in. Economists were expecting October housing starts to feel a Sandy impact and had pencilled in a reduction, so there were some surprised looks when the result came in at a 3.6% gain. Starts are up 42% from a year ago to their highest level in four years.
The Dow had opened lower from the bell last night, which is not a shock given Monday's 200 point rally, but the housing starts numbers encouraged a graft back to square by midday. At that stage, however, Ben Bernanke was giving a speech in New York in which he pointed out that the Fed already had its full arsenal deployed, meaning that were the US to go over the worst case scenario fiscal cliff then there was nothing left the central bank could roll out as a counterbalance. This "news" spooked Wall Street, and down we went again.
He has actually made the same point previously, but Wall Street has a short memory. Meanwhile, Dow component Hewlett Packard announced a big write-down having discovered what appears to be fraudulent accounting at a recent acquisition. HP shares closed down 12% and created quite a drag.
It is interesting that Bernanke should declare the cupboard bare in the face of the potential cliff. Australia is facing its own fiscal cliff ? call it the pretense of a surplus cliff (not to mention state budget cuts) ? which features firmly in the RBA's consideration. Unlike Bernanke, Stevens has to room to move, yet a cut to 3.0% in December will bring us back to the desperate GFC "emergency" rate of 2009. And Wayne Swan will tell us how wonderful our economy is.
The HP trashing was worth about ten Dow points, so we can basically suggest a flat night all round on Wall Street. The Dow hit its nadir at lunchtime post Bernanke's comments, down over 90, but the newfound optimism of Monday ensured another rally back.
A steady euro meant a steady US dollar index last night, at 80.91, while despite expectations of a December rate cut, the Aussie has only slipped 0.2% to US$1.0390. After a solid jump on Monday night, gold fell back US$4.60 to US$1727.60/oz.
Aluminium, lead and zinc all gave back 1% of Monday's gains, while copper, nickel and tin were steady. Iron ore has taken a hit however, down US$2.20 to US$120.60/t.
The oils are currently beholden to perennial religious arguments (the type that by definition can never be resolved ? why do people always assume they can be?), and the latest development for Gaza is a potential ceasefire agreement brokered by Egypt. The guns may have fallen silent by the time you read this. And this is exactly what happened in 2009.
Brent is down US$1.87 to US$109.83/bbl and West Texas is down US$2.28 to US$87.00/bbl.
The SPI Overnight closed up 2 points.
So we await news on Greece and news from the Middle East and tonight we'll see Wall Street empty out from lunchtime as traders run for trains, planes and automobiles to get them back to their home towns for Mom's roast turkey and pumpkin pie.
Programmed Maintenance ((PRG)) will report interim earnings today.