(FRIDAY 15TH JULY - 08.25 - JAMES GERRISH)....Benanke threw cold water over the immediacy of any further stimulus in the US overnight, suggesting that inflation had ticked sharply higher + insinuating that they would only look to print more money if deflationary pressures became evident. This overshadowed some generally positive economic news where we saw a reduction in Initial Jobless claims and retail sales came in better than expected.
The US market opened the session higher after the economic reports were released and risk was firmly on the table. It all came unstuck when Benanke spoke and stocks finished in the red. The DOW JONES down -54pts and the S&P 500 lost -0.67%. Locally, the SPI FUTURES are pricing a drop of -9pts when trading kicks off here.
The magic word 'Inflation' was mentioned last night last night and this prompted buying in the Gold market. Gold will benefit from inflationary pressures as investors look for a store of value. We saw Bullion hit another all time high at $1592 which will obviously be a positive for Gold stocks locally. I think inflation will be a major theme in the years to come and this will be supportive of Gold prices.
Other commodities were broadly lower overnight with the commodity index failing to break the swing high we've discussed over the last few days.
DEBT CEILING
Still no outcome in relation to the debt ceiling overnight however it appears Obama will speak in the next 24-36 hours to give an update on progress. Really, there is no other option for them but to raise the ceiling - default would be diabolical and an outcome that I really wouldn't want to contemplate. (US Dollar plummet - borrowing rates surge - credit rating lost...!). Expect a resolution around this shortly - could be as soon as tonight. Common sense should prevail here.
EUROPEAN DEBT
Not a lot going on overnight although there were reports that Ireland will have enough cash until 2013 so won't be tapping the EU in the immediate future. (slight positive). Italy forced through another $48 billion of austerity measures however we're still seeing Italian Bond Yields tick up. (a negative)
US EARNINGS
A couple of key companies undated the market overnight with both Google and JP Morgan beating the streets expectations.
JPMorgan added 1.8% after it reported its highest half-year profit ever, at almost $US11 billion. Second- quarter net income climbed 13 per cent from a year earlier, to $US5.43 billion, or $US1.27 a share, six cents higher than we were expecting.
Google shot the lights out (after the market had closed) with a 36 per cent increase in revenue which was well ahead of expectations. The shares were up more than 12 per cent in after hours trading.
Still, I think its going to be tough for these strong results to gain the traction they deserve when the market is firmly fixated with broader Macro news flow.
DJs
David Jones (DJS) put out a shocker yesterday with the company announcing an 11% profit downgrade and was very cautious about the outlook moving forward. DJs was crystal clear about their view of the recent 'Govt Initiatives' which they say has totally undermined consumer confidence and prompted a sharp increase in household savings rates. Its hard to argue with them really!
The stock fell more than 18% yesterday and dragged the entire discretionary sector with it. We've actually added the stock as a short term BUY in our Short Term Trade Ideas, however a tight stop loss is suggested and its only for the brave.
WHAT'S OUT TONIGHT
US CPI, industrial production, the Empire state manufacturing survey and Michigan confidence.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.37 to US$15.99, equivalent to A$14.92, A$0.28 below its last close on the ASX.
ResMed rose by US$1.02 to US$33.17, equivalent to A$3.09, A$0.12 above its last close on the ASX.
In London, Rio Tinto fell 53.5 pence to £43.88, A$0.80 lower in Australian currency terms.
BHP-Billiton fell 48.0 pence to £23.93, A$0.72 lower in Australian currency terms.
Henderson Group Plc fell 3.1 pence to £1.51, A$0.05 lower in Australian currency terms.
