The Overnight Report: Almost There


By Greg Peel

The Dow rose 83 points, or 0.6%, while the S&P gained 0.6% to 1563 (2 points shy) and the Nasdaq added 0.4%.

Yesterday's jobs number in Australia certainly raised a few eyebrows. The government was all over it of course, but might not be quite so effusive in the next month or two if the statistical anomaly cited by economists comes back to bite. It's all to do with the ABS' seasonal adjustment and household rotation or some such, leading to an addition of 50,000 plus part-time jobs on top of about 18,000 full-time. A big jump in the participation rate ensured an unchanged unemployment rate.

The result was nevertheless enough for the local market to post the sort of session we were used to from Wall Street before this year ? tanking on the implication there will be no RBA rate cut anytime soon. The Aussie shot up, by 0.8% to US$1.0373, which further weighed on equity sentiment.

Last night on Wall Street it was simply more of the same, albeit this time there was no earlier sell-off and all-day graft. Stocks opened higher from the bell and drifted higher still. There was not a lot of specific impetus, with the possible exception of another 10,000 fall in weekly new jobless claims.

It has not been lost on commentators, however, that the higher Wall Street has pushed this year, the lower average daily volumes have drifted. Volumes for March to date are 12% below last March and volumes for this particular ten-day rally are on average lower than prior volumes in 2013. The S&P 500 is now a mere two points off the all-time high which may yet prove to be a "job done" point at which the oxygen depletes. Tonight in the US is "quadruple witching", meaning all of stock and stock index, stock futures and stock index futures options expire simultaneously. Is this ten-day rally simply a push towards expiry? What will happen thereafter?

It's rather pointless speculating, because we're simply not in Kansas anymore, Toto. Notably, the previous nine-day rally, in 1996, boasted strong volume. Commentators continue to note this time that there is yet to be any rotation out of bonds and into stocks. We're about to hit an inflexion point and at the risk of sounding like a technical analyst, it could go either way.

The US dollar did manage to drop a little last night, down 0.4% to 8.60 on its index. Base metals did nothing bar a 1% gain for nickel, and gold is steady at US$1589.90/oz. The oils managed to claw back some ground, with Brent rising US90c to US$109.42/bbl and West Texas adding US52c to US$93.04/bbl.

There was nevertheless little joy in the spot iron ore price. After a decent fall on Wednesday, yesterday iron ore plunged 4.5% or US$6.10 to US$132.90/t. If the big miners were under pressure yesterday, a solid rally on Wall Street may not be enough to overcome more nervousness today. The SPI Overnight seems confident, rising 18 points, or 0.4%, but as to whether buyers are keen to return to the banks at these levels is yet to be seen.

After the bell on Wall Street, the Fed issued the results of US bank stress tests. Ostensibly the Fed was testing before approving the banks' applications for capital returns (share buybacks and dividend increases), and most of the big banks got the green light. The exceptions were Goldman Sachs and JP Morgan ? both of which run large derivative books and for which the Fed found "tail risk", or disaster risk, too unappetising. Both will need to reapply if they are to provide capital returns in the third quarter. If they fail again, the window shuts. Bank of America immediately announced a US$5bn buyback.

Goldman Sachs shares are down 2% in the after-market and JP Morgan shares are down 2.5%. BofA shares are up 4%.

Tonight in the US sees monthly releases for industrial production, the Empire State manufacturing index and the CPI, as well as the aforementioned quadruple witching. Can the S&P find that two points?

Note there will be some major index rebalancing at the close of trade on the ASX 200 today. While rebalancing is zero-sum on an index basis, individual stocks can affected in either direction. See Treasure Chest: Extensive ASX Index Rebalance.

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