The Overnight Report: Weaker US Earnings, Stronger Economy
By Greg Peel
The Dow closed up 5 points, while the S&P rose 0.4% to 1460 and the Nasdaq gained 0.1%.
News came through after US markets had closed yesterday that after months of deliberation, ratings agency Moody's had decided not to downgrade Spanish debt one more notch to junk, thus leaving Moody's aligned with Standard & Poor's. Moody's kept Spain on negative watch however, and any further downgrade will cut off Spain's access to lending markets given its debt will no longer be investment grade. This is the point at which Spain would be forced to ask for a bail-out, if it hasn't done so already, so it's academic.
Indeed, last night the yield on Spain's ten-year bond fell 40 basis points to 5.46%.
This should have been a positive impetus for Wall Street as the opening bell rang in New York, however domestic news overshadowed international news in the form of weak earnings reports. After the bell on Tuesday Dow stocks Intel and IBM posted results that were not well received, with IBM's in particular representing a solid miss. Intel shares fell 2.5% last night and IBM shares 5%. IBM's fall alone is worth 90 Dow points.
Dow stock Bank of America reported last night before the bell. BofA posted a huge drop in profit given litigation charges, but its underlying business managed to satisfy Wall Street on earnings. Revenue let BofA down, however, and its shares closed slightly lower.
The Dow was down 83 points from the open on earnings news, but just when all suddenly looked bleak, out came the housing starts numbers. New starts jumped 15% in September including an 11% increase in single family homes. It's the fastest pace of starts in four years, and the release lit a fire under the listed builders.
The end result was a flat Dow. If we use, as we should, the broad market S&P as a gauge, it was another solid day on Wall Street with the Nasdaq lagging on the tech result disappointment, which to a large extent reflects the slow death of the PC.
The housing starts numbers have only served to further fuel the inflation debate, as successive US economic data releases (retail sales, industrial production, housing) bring into question the need for a zero Fed rate and QE3. It will nevertheless all come down to unemployment, but between Spain and starts last night the US ten-year yield jumped another 9bps to 1.81%.
The euro also rose further, sending the US dollar index down another 0.4%. Gold could not rustle up enough buyers and hence despite the currency it remains flat at US$1748.80/oz. Beware the Aussie, however, which is beginning to look like it might be in one of its bullish moods again. It has jumped a cent over 24 hours to US$1.0384. What will the RBA's bet be next month?
Base metals were all up a percent or more on the weaker greenback in light, LME Week-affected trade. Brent crude rolled into the December delivery contract and in so doing lost about a dollar and then fell US78c to US$113.22. West Texas, which will roll over next week, fell US10c to US$91.99/bbl.
Spot iron ore rose US$2.80 to US$115.40/t.
The SPI Overnight took its lead from the S&P 500, rising 17 points, or 0.4%.
After the closing bell in New York, online bellwether eBay posted its earnings results and largely matched expectations, while American Express (Dow) missed on the revenue line, but has not garnered any great reaction in the aftermarket.
It's a busy day today for stocks on the local bourse. After its recent profit warning, Bank of Queensland ((BOQ)) will add more colour with its full-year result, and Network Ten ((TEN)) will also report its full-year, no doubt helping to highlight why private equity burned itself completely on rival Nine. You only get one CVC in a lifetime.
We'll also see September quarter production reports out today from BC Iron ((BCI)), Newcrest ((NCM)), Santos ((STO)) and Woodside ((WPL)) and quarterly sales numbers from Woolworths ((WOW)). WorleyParsons ((WOR)) will hold an investor day amidst another raft of AGMs.
All of the above will no doubt be overshadowed, one presumes, by the release of China's September quarter GDP. China's growth rate has decelerated for seven quarters and consensus is for 7.4% growth in September, down from 7.6% in June.
Beijing will also dump monthly industrial production, retail sales and fixed asset investment numbers today.
Rudi will tell you all about on Sky Business today at noon and later in the day on Switzer TV between 7-8pm.
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