The Overnight Report: Still Trying

Reported by FN Arena
Friday, February 24, 2012
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The Dow rose 46 points or 0.4% while the S&P gained 0.4% to 1363 and the Nasdaq added 0.8%.

Last night the US Treasury auctioned US$29bn of seven-year notes and was shocked, as were traders, by the extent of demand from both domestic and international sources. Domestic money managers made up 19.3% of the bids, which is a record. Foreign central banks nabbed 42%, which is a big jump on the running average. And what did they get? An interest rate of 1.42% ? negative in real terms with even core US inflation now over 2%.

Normally on a day when there's such strength in demand for bonds you'd assume weakness in the stock market, but no, the Dow is continuing in its attempts to bang up against and maybe break the 13,000 ceiling. There are some comparatively good yields on offer in stocks, yet still US bonds are a safe haven. And if we were talking Australia, strong foreign demand for Aussie bonds would affect further strength in the Aussie dollar, but last night the US dollar index fell 0.7% to 78.68.

Currencies are relative, of course, and last night Germany's IFO business climate survey caused more shock when it came in with a gain to 109.6 from 108.3 in January. Economists were expecting a gain, but not by that much. What do German businesses have to feel confident about? Perhaps not having to worry about Greece for the moment is at least blessed relief.

The IFO result pushed up the euro, which everyone and his dog is expecting must fall towards parity with the US dollar sooner rather than later (short squeezes are thus prevalent), and hence the dollar index dropped sharply. Meanwhile back in a Ruddless, sorry rudderless, Australia, the Aussie is back over US$1.07.

Last night's US data were also positive, with particular excitement being sparked by a 0.7% increase in the FHFA house price index for December. Never mind that prices were down 2.4% for the December quarter, but the last month tick-up has Wall Street talking trough. And there was another positive result for the weekly new jobless claims numbers last night as well.

Countering all, nevertheless, is the price of oil. Last night Brent rose another US62c to US$123.67/bbl while West Texas leapt US$1.76 to US$108.04/bbl. US gasoline prices are now beginning to top the US$4/gal level in some parts of the country ? a psychological barrier for the American consumer.

Base metal prices were neither here nor there last night and gold took a breather as well, rising only US$2.90 to US$1780.30/oz.

So can the Dow break 13,000, and usher in another phase of the rally off the Greek-panic lows? It's hard to find commentary that is particularly bullish. Most commentary at present suggests a sideways period as Wall Street tries to shake off European woes and concentrate more squarely on the domestic economy and actual corporate earnings.

The SPI Overnight is up 13 points or 0.3%.

RBA chairman Glenn Stevens will make a scheduled appearance in front of the House Economic Committee today from which no doubt some idiot will berate him about not providing interest rate relief for mortgage holders and small businesses this month (ie politically popular stuff).

It's a slightly quieter day for earnings reports today although there are enough to get by on. And as I write, AIG ? the company the US government had to spend the most money rescuing in 2008 ? has just blown Wall Street away with its quarterly earnings result. Its shares are up 5% in the after-market.

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