The Overnight Report: Dow Stumbles Across The Line

The Overnight Report: Dow Stumbles Across The Line

13/04/2010 11:15:04 AM

By Greg Peel

The Dow closed up 8 points 0.1% to 11,005 while the S&P added 0.2% to 1196 and the Nasdaq gained 0.2%. NYSE volume 973m.

Alcoa reported its March quarter earnings after the bell last night, thus kicking off reporting season in the US. The aluminium producer reported a loss of US$200m compared to a US$497m loss this time last year, but write-backs had it posting positive US10c earnings per share, directly in line with expectation. The disappointment came in revenue which at US$4.9bn fell short of US$5.2bn estimates. It is the first time Alcoa has missed revenue consensus in eleven quarters.

This is not a good start, and Alcoa shares are down slightly in the after-market. The company cited a shortfall in demand as to why it could not profit in the higher aluminium price environment. But one swallow does not a summer make, and there are 499 more reports to digest yet in the S&P alone. Among others, this week sees reports from Intel, JP Morgan, Bank of America, Google and General Electric.

Wall Street endured a choppy general session as the Dow struggled to consolidate a level over the 11,000 mark. It hit 11,029 but more importantly, the S&P 500 peaked at 1199 before drifting back. A breach of 1200 in the S&P is what Wall Street is really watching for. Volume was a little better than recent times but weak for a day in which the GFC is “conquered” by the Dow returning to its pre-Lehman level, as far as most were concerned.

The euro pushed higher again last night as the world absorbed the EU-IMF rescue plan. The plan could be tested as early as tonight as Greece intends to issue 1.2bn euros worth of six-month and one-year bills. If demand is insufficient, Greece can submit a docket to the EU for the shortfall.

There are nevertheless those still worried that the rescue plan is simply a means of pushing the real problem further into time. Greece now has a buffer, but will it manage to slash its budget deficit as required, and do so without the natives getting restless?

The economic news of the night was the release of the monthly Treasury budget, which showed a big decline in deficit from a month ago, and a 65% decline from last March. The deficit had blown out in February, but a reduction on the books of the expected final cost of bank-bail-outs (ie the TARP) in March meant the reduction to US$65bn, the eighteenth consecutive month in the red. Economists had nevertheless expected a reduction to a US$62bn deficit.

It must be remembered that monthly numbers are highly volatile.

The timidity in the stock market was matched in commodities last night. A stronger euro saw the US dollar index falling 0.4% to 80.55 but only nickel managed to post a representative gain, rising 2%.

Copper is having difficulty breaking through the US$8000/t mark and slipped back 0.8% last night. After a solid few days, gold lost US$5.40 to US$1156.00/oz. Expectations of rising crude inventories this week had oil down US58c to US$84.43/bbl.

The Aussie also ignored the US dollar, falling back 0.7 cents to US$0.9261 one the back of weak lending finance data released in Australia yesterday.

The SPI Overnight lost 15 points or 0.3%.

In yesterday's session the SPI (the futures contract for the ASX 200) closed over 5000 having recently established a fairly strong premium over the June contract's fair value (net of carry). This implies some enthusiasm for the ASX 200 to match the All Ords and breach that 5000 mark, which is Australia's equivalent of the S&P 500 pushing through 1200. On a technical basis, 5000 is a brick wall of resistance given the index spent a good couple of months holding this level on the downside in 2008 before the ultimate collapse of Lehman in September.