The Overnight Report: And Now For The Bad News


By Greg Peel

The Dow fell 9 points, while the S&P was flat at 1521 and the Nasdaq was also flat.

The ASX 200 made 5000 look very much like "just another number" yesterday after the index surged through the psychological level. It will take more than just this minor breach to confirm a break, at which point we may see more of that "cash on the sidelines" pour in like a stampeding herd. First up today we have to see how the market responds to yesterday's after-the-bell loss announcement from Rio Tinto ((RIO)). The stock traded lower in London and New York.

Today's earnings calendar highlights include a quarterly update from ANZ Bank ((ANZ)), along with interims from Sims Group ((SGM)) and a host of lesser caps. Next week the earnings season steps up another gear.

Japan's December quarter GDP result, released yesterday, highlighted the dire state of the Japanese export economy ? that which the new government is going all out to address. Not only did the Japanese economy shrink for the third consecutive quarter, the 0.4% annualised contraction caught out analysts who had forecast a 0.4% expansion.

The stand-out number was a 14% annualised fall in exports, to mark a second straight quarterly fall. The new government pointed to the recession in Europe, fiscal cliff fears in the US in the quarter and ongoing territorial tensions with China as the main factors behind weak external demand. The government nevertheless attempted to paint a brighter picture, suggesting December would prove to be the trough ahead of the significant fiscal and monetary stimulus measures in the offing ? policies which have sent the yen spiralling down 20%, stoking the global Currency War.

The Bank of Japan announced no new monetary stimulus after its meeting yesterday, unlike the previous month. The BoJ governor is set to retire next month and his replacement, yet to be named, is expected to be supportive rather than resistant to Prime Minister Abe's controversial reflation drive.

Speaking of the European recession, recent surveys out of the eurozone and Germany in particular have shown a level of strength of confidence that has surprised observers. Hope had been that the December quarter might prove a trough, but having contracted 0.1% in the September quarter, the eurozone GDP contracted 0.6% in December quarter-on-quarter and 0.9% year-on-year. Both numbers are worse than expected. While individual contractions were expected in the likes of Spain and Italy, both France and Germany also registered contraction. Over 2012, the eurozone economy shrank 0.5%.

A cut to the ECB cash rate from 0.75% has been anticipated since last year, but has yet to materialise, so last night's results have upped the ante. The euro tanked as a result, sending the US dollar index up 0.4% to 80.36. The euro has been drifting higher for some time with some help from the aforementioned more positive surveys, bank LTRO repayments and as a result of QE3 and the Japanese attack on the yen. A strong euro is stifling any hopes of a turnaround in Europe's export economy, but to date all Mario Draghi has done is to attempt to "talk the euro down". If he actually acts (rate cut, stimulus payments to Spain etc), he will simply be opening up yet another front in the Currency War.

It could be fun to be a fly on the wall in Moscow tonight, as the G20 finance ministers and central bank types sit down to discuss how they can possibly coordinate the "race to the bottom".

Meanwhile, Australia waits in hope of an RBA rate cut. Money is now shifting out of Australian bonds, but as the ASX 200 surges through 5000, it's pretty clear where it's going. It's not going offshore. Another rate cut is unlikely to have much impact on the Aussie.

Wall Street trundled sideways once again last night as a positive result for the (volatile) weekly new jobless claims gave way to the abovementioned dour economic realities from across the oceans. The big news was in M&A, nevertheless. Warren Buffet and a private equity firm have made a bid for Heinz, maker of tomato sauce, baked beans, and truckloads of cash, while the world's biggest airline will be created after the announced merger of AMR, owner of American Airlines, and US Airways. M&A activity is traditionally the stuff of bull markets.

Gold traded lower again last night, down US$7.20 to US$1634.10/oz on a stronger greenback. Technical analysts warn a break of 1630 would see clear air to 1600 and maybe even 1580. The Aussie is 0.1% stronger at US$1.0355.

Base metal traders may just have well stayed in bed as the Chinese holiday slows commodities trading to a grind. China will be back on deck on Tuesday. Oil was similarly uninterested last night, with Brent flat at US$118.72/bbl and West Texas up US39c to US$97.40/oz.

The SPI Overnight fell 7 points.

Rudi will appear on Sky Business' Your Money, Your call tonight at 7pm.

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