The Overnight Report: Dip Buyers Regroup


By Greg Peel

The Dow closed up 19 points, or 0.1%, while the S&P gained 0.5% to 1562 as the Nasdaq added 0.9%.

Apple shares added 2% last night ahead of the company's earnings report tonight as Wall Street weighs up whether or not the fallen hero has now been oversold. But the Nasdaq is proving it doesn't need Apple to lead the charge, with the tech-laden index having now rebounded strongly from its significant sell-off last week. Last night's stand-out performer was online content subscription service Netflix, which rose 7% ahead of its result due after the bell. It wasn't a bad result. Netflix shares are up no less than 24% in the after-market.

Netflix will presumably provide a confident lead-in to tonight's session. Otherwise, earnings results continue to be mixed. After disappointing the market on Friday, General Electric (Dow) continued to fall last night. Caterpillar (Dow), which has been heavily knocked down due to its significant Chinese market, suggested last night that Chinese output would expand in the June quarter and also announced a buyback, sending its shares up 3%. A US$2bn single investment in Microsoft (Dow) saw its shares jump 3.5%.

The good news unfolded during the session, which otherwise started with an immediate sell-off in the Dow of 90 points. Results announced before the bell did not inspire and March existing home sales showed a fall of 0.6%. Recent housing market data have tended to be weak, which is enough to scare flighty traders given the importance of the housing recovery to US economic recovery.

But the 0.6% fall belies the fact existing home sales are up 10.8% year on year, and median prices are up 11.8% year on year to mark the biggest rise since 2005. One reason existing home sales have fallen more recently is rising prices, but also a gradual decrease in the number of distressed sales. This suggests US housing is truly on the mend.

Notwithstanding a spike-up in mid-April, the S&P 500 has basically been consolidating since early March. Any hopes of a pullback were being thwarted given the eagerness of investors to buy any perceived dip. It was going to take a left of field trigger, and China's weak GDP result provided just that. But now that the dust has settled, Wall Street is clearly back into buy-the-dip mode. As to what might spark indices into a new push into blue sky is nevertheless a case in point. Recent economic data have not been strong, earnings results have to date been mixed, and European worries are continuing to build once more.

The rebound in the gold price has been swift. The big plunge last week, over which arguments are still raging as to why, saw the commodity that's really a currency fall as low as US$1345/oz, but another US$19.40 gain last night has gold already trading back at US$1425.90/oz. The rebound has had little to do with the US dollar, which was off 0.2% to 82.63 last night. The Aussie has risen by the same amount to US$1.0274.

Base metals are also attempting to consolidate after the big commodity fund exit over the past few sessions. When the speculators start rushing out or diving in, as they are wont to do in frenzies, the physical traders simply stand aside. If the dust can settle prices may find a floor, albeit amongst mixed moves last night copper was down another 0.6%.

The oils have also rebounded from their lows, with Brent up US74c to US$100.39/bbl last night and West Texas up US$1.03 to US$89.30 on the new June front month. Oil rose despite a lack of clarity as to whether OPEC is going to hold emergency production cut talks or not.

Spot iron ore is steady at US$138.00/t.

The SPI Overnight was up 13 points or 0.3%.

It's a busy 24 hours ahead for corporate reports and data releases. Locally we are expecting quarterly production reports from Beadell Resources ((BDR)), Mirabela Nickel ((MBN)), Mincor ((MCR)), Newcrest ((NCM)), Oil Search ((OSH)), PanAust ((PNA)) and Santa Barbara ((SBM)).

Later this morning HSBC will release its flash estimate of China's April manufacturing PMI, and similar releases are due from the eurozone and US tonight. US earnings season highlights tonight include Apple, fast food conglomerate Yum Brands, and Dow components Du Pont and United Technologies.

Rudi will appear on Sky Business this evening at 5.30pm.

Join the Discussion