The Overnight Report: By A Whisker

The Dow closed up 2 points, but the S&P lost 0.2% to 1552 and the Nasdaq fell 0.3%.

It was touch and go at the death, but the Dow did manage to close in the green for an eighth straight up-day. The previous record is 13 days as 1986 turned into 1987, but we won’t mention what happened next.

The S&P has not quite shared the streak, although it is academic. Wall Street appears determined the S&P should also breach its all-time before any pullback can occur. Although it looked for all the world last night that the sellers were set to roll in after lunch.

Wall Street was shaken out of its euphoric haze last night when the Republicans published a plan to reduce spending by US$4.6trn over the next decade and balance the budget by 2023, without ever raising taxes. The White House immediately scoffed, calling the plan mathematically implausible, and announced the Administration’s own budget plan would be released in the week of April 8. It is a stark reminder that debt resolution is a major issue still hanging over Wall Street, with an agreement needed to be reached on what remains a postponed fiscal cliff sequester. Come May, the debt ceiling will need to be renegotiated. Last year a failure to agree was the trigger for the US downgrade.

The Dow was down 35 points just after 2pm and the selling appeared set to accelerate. But no, in came the buyers, ensuring a flat close. The US dollar was also looking weak as stocks fell before it, but it too rebounded to be almost steady at 82.58.

The earlier dollar weakness came despite a shocking economic release out of London. UK industrial production fell 1.2% in January and manufacturing output fell 1.5%. Economists had estimated both numbers to show a 0.1% increase. Markets had expected the BoE to announce extended QE last week but it didn’t, although the assumption was it is only a matter of time. Perhaps this number might prove the catalyst.

It was nevertheless an interesting night for commodities. Base metals have been drifting ever lower on a stronger US dollar and uninspiring Chinese data, to a point many were calling the metals oversold. Last night’s earlier drop in the dollar sparked a spate of short-covering, which saw all prices rebound around 1%. The LME closed before the dollar recovered.

Gold also shot higher, rising US$11.90 to US$1593.00/oz, although gold has been drifting higher over recent sessions. No doubt the return of US budget argument fears played a part last night. West Texas crude also rallied, up US45c to US$92.51/bbl, but Brent succumbed to the weak UK data in falling US57c to US$109.65/bbl.

The Aussie dollar is suddenly up half a cent to US$1.0321.

Weakness in commodity prices has kept a lid on share prices in the Australian material sector, with a once again soft iron ore price helping to leave some big names out of the otherwise bank-driven rally. Iron ore fell another US70c to US$143.40/t yesterday. More selling in the material space helped the local index to a weaker close yesterday, but with Wall Street again holding fast, the SPI Overnight is up 9 points or 0.2%.

NAB surprised yesterday with an unexpectedly weaker business confidence survey, and today we find out how consumers are feeling this month from Westpac. Housing loan and investment lending data will also be released.

It’s eurozone industrial production tonight, which might create some nervousness given the extent of the UK fall. US retail sales numbers are also due for release and economists will be looking for whether the January 1 payroll tax increase continued to impact on sales in February.

Can something tip Wall Street over, or are we heading for Day Nine?

Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

View more articles by Greg Peel →