The Overnight Report: Out Of My Way, I'm A Buyer


By Greg Peel

The Dow closed up 175 points, or 1.3% to 14,075, while the S&P gained 1.3% to 1515 and the Nasdaq added 1.0%.

Italy's political parties are now entertaining the idea of possibly being able to stitch together a government. This will simply require an unlikely coalition of some sort to ensure a majority in the upper house for the Centre Left, which won the lower house by an insect's appendage.

Given the parties were all hell-bent against coalitions going into the election, the chances of something workable emerging may be slim. We recall that in a similar position last year, Greece tried to scrape something together before ultimately conceding to a second election. The news was enough to calm European markets nevertheless, and markets were further relieved when an auction of E4bn of Italian ten-year bonds settled at 4.83%. It's the highest price the government has had to pay since October, but traders were fearing a cost in excess of 5%.

Subsequently, European stock markets rebounded last night, with the UK and Germany up around 1% and Italy and France up close to 2%. The euro also reversed, posting a 0.6% gain against the US dollar.

Across the pond, Wall Street seems completely unaffected by the goings on in Italy. Is it euro-ennui? We've been watching these continental meltdowns for three years now and yet we've survived, and survived enough to see the US stock market approaching all-time highs. Similarly, sequester talk seems now to be evoking no more than the odd shrug. The fiscal cliff was a fizzer, and somehow the government will get through this one too, it is assumed (which is really only the cliff postponed). Many are even suggesting the budget cuts won't prove as devastating as assumed.

Ben Bernanke was no sot sanguine on the subject of the sequester on Tuesday night, suggesting the Fed would not be able to compensate for the negative impact on GDP growth. But last night in Day Two of his testimony to Congress, Bernanke again pushed home the point that QE will remain in place until the US unemployment rate falls sufficiently. Who can make a rainbow? The Candy Man can.

Bernanke also made mention of the turnaround in the US housing market as a major driver of a US recovery. Last night the pending home sales index for January was released, showing a 4.5% gain. It represents the best month since April 2010 when Obama was offering tax breaks as part of post-GFC fiscal stimulus. Year on year, pending sales are up 9.5%.

Wall Street loved it. The market also loved the January new durable goods orders result, despite a prima facie drop of 5.2%. Take out the lumpy aircraft segment and new orders rose 1.9% -- the best result in over a year. Forget Europe, forget the budget. Wall Street has the all-time high for the Dow clearly in its sights and few believe that level won't be breached very soon. As of last night's close, 89 more points will do it. The more representative broad market S&P 500 still has 3% to add. The Dow has closed above 14k on four previous occasions this month. Last night's was the highest close yet.

If everyone expects a pullback, there will never be one. Once the pullback talk subsides and the "just buy it" call goes out, only then is a pullback likely.

The gold market is really not sure what to do at the moment. On Tuesday night gold shot back up over US$1600 on Bernanke's insistence QE was here to stay. Last night Bernanke was still singing the same tune, but gold fell US$17.60 to US$1594.90/oz. Tuesday saw gold rally on a monetary inflation call, last night saw a "risk on" session in which gold is not preferred.

Gold fell despite a 0.4% drop in the US dollar index to 81.54, affected by the stronger euro. The Aussie is steady at US$1.0233. Base metals have stalled, with last night's moves mixed and inconsequential. Spot iron ore is unchanged at US$151.90/t. Brent oil continues to suffer from European fears in falling US67c to US$112.04/bbl, while West Texas was steady at US$92.65/bbl.

The SPI Overnight closed up 41 points, or 0.8%.

Tonight will see a revision of the US December quarter GDP, which economists believe will show a gain of 0.5% rather than the initially estimated 0.1% fall.

Locally, you don't want to know how many companies are due to report earnings today. We will also see December quarter private capital expenditure and expenditure intentions (very important numbers for the RBA) as well as December quarter private sector credit.

Rudi will appear on Sky Business today at noon and again at 7pm for the Switzer Report.


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