By Greg Peel
The Dow closed down 20 points, or 0.2%, while the S&P lost 0.1% to 1514 and the Nasdaq dropped 0.1%.
It was of little surprise that Japanese prime minister Shinzo Abe yesterday nominated Asian Development Bank president Haruhiko Kuroda for the position of governor of the Bank of Japan. As a fan of unfettered money printing, Kuroda was the short odds favourite. The Japanese parliament will vote on the appointment in two weeks.
Speaking in Q&A after a speech in Munich late on Wednesday, ECB president Mario Draghi responded to a question by suggesting the central bank was "far" from exiting its loose monetary policy stance. Presumably the question was prompted by Fed chairman Ben Bernanke's testimony this week to a Senate committee which left the world in no doubt the Fed's QE and ultra-low interest policy will remain in place for a long time yet.
Three of the world's four biggest economies are engaged in unprecedented monetary stimulus in order to ensure they stay the biggest. It is the one fundamental reason why last night the Dow Jones average was ready to make its first real attempt at breaching the 2007 all-time peak.
It was a slow start to proceedings, with the indices bouncing around the flat line right up to lunchtime. The Chicago PMI was released and showed a very impressive 56.8, up from 55.6 in January, when economists had expected a fall to 54.0. The first revision of the December quarter GDP result was less impressive.
Taking the October numbers and extrapolating them across three months provided a first GDP estimate last month of 0.1% contraction. It was a bit of a wake-up call, but a 22% drop in government defence spending was blamed. Adding in the November numbers and extrapolating the two months across three last night produced a 0.1% expansion ? back in the right direction, but short of the 0.5% economists were hoping for. Another revision will be made next month.
It was not a result that was likely to provoke a rush to the summit, but perhaps after a couple of wines at lunchtime Wall Street decided to give it a shot anyway. Around 2.30pm the Dow reached 14,149 ? up 74 points a mere 15 points short of the mark. But clouds loom over the summit, and Wall Street quickly decided today was not the day.
It was, of course, the last day of the month and end of month profit-taking is quite normal. There was also a rebalance of the 500 stocks of the S&P at the close, adding to volatility. The first day of a new month is typically strong, so there are expectations that tonight could be the night. Over to you Rod.
Tonight in the US is, nevertheless, "sequester day", after which the automatic budget cuts, which formed part of the original fiscal cliff before being postponed, are enforced. That is unless Obama and Boehner can agree sometime around five to midnight Washington time to postpone them again. There has been no sign of compromise. Wall Street has mixed feelings about the sequester, ranging from "we're all going to die" on the one hand to "storm in a tea cup" on the other. Ben Bernanke is worried, while other (Republican leaning) commentators question why reining in the budget deficit from 14% growth per annum to 2% growth per annum can be such a bad thing.
Then there's Italy of course, but it may be a while before we get any news from Rome, and possibly months before another election is held, if that is what is to be. The markets will thus forget about Italy in the meantime.
The strong Chicago PMI, which is seen as a precursor to tonight's US manufacturing PMI release, combined with the Japanese nomination and hawkish talk from Draghi has pushed the US dollar index up 0.5% to 81.95. This is not good news for gold, which fell another US$16.80 to US$1578.10/oz. The Aussie refuses to budge though, down slightly to US$1.0215.
Elsewhere, commodity prices traded lower on the stronger dollar, with base metals mostly weaker, Brent crude down US$1.05 to US$110.99/bbl and West Texas down US85c to US$91.91/bbl. Spot iron ore fell US20c to US$151.70/t.
The SPI Overnight closed down 17 points or 0.3%.
The local earnings result season is now over. Or at least, over as far as the bulk of large caps is concerned. There's the odd straggler reporting in March from the large cap camp, otherwise a stream of result releases into the new month will be dominated by small cap companies.
Today sees the release of the Australian and Chinese manufacturing PMIs for February, followed by equivalent releases from the eurozone, UK and US tonight.