FYI | Aug 03 2007
By Greg Peel
On July 16 the Dow rose 43 points, and on July 17 it rose 21. That was the last time we saw the Dow put together two days of consecutive rallies before last night. Last night the Dow rose 101, following from Wednesday’s rally of 150 points. Despite the significantly greater size of this two day rally, last night could almost be considered calm.
The market still rollercoastered during the session, but in a narrower band than yesterday and all in the green. Once again it was a last-hour surge that provided Wall Street with its result.
The market did not start calmly however, as a rumour flew around the Street that the previous night’s extraordinary last twenty minute rally was not actually bargain hunters at all, but a “fat finger” error. Fat finger errors are caused when someone, somewhere, enters a price into the system that is manifestly incorrect by mistake. For example $100 instead of $10. Because the rally was put down initially to “program trading” (a process whereby a large institution uses a computer model to generate index-based across-the-board orders), this rumour was not that difficult to believe.
But like many rumours flying around at the moment – and there are many – this one evaporated. Another rumour had the market spooked during the session as well – one that had mortgage lender CountryWide (the company that really set off the panic this week) having trouble raising any credit at all. This rumour was also quashed in due course. In a market as volatile as this one, you could tell a trader the sky was falling and he’d immediately sell Boeing just in case.
Program trading was supposedly again behind last night’s late surge. This heartens the bulls, as it suggests the “real” money is re-entering in force. Every other financial market is watching the stock market for direction now, and the results were corroborative.
Oil was up slightly, gold was up slightly, the US dollar was down except against the yen meaning carry trade unwinding took a breather (Aussie back up to US$85.85), ten-year bonds were steady and, most importantly, credit spreads eased back a tad.
Earnings news was once again mixed but leaning to the positive. Nokia and Starbucks posted good results and with 77% of companies now having reported, earnings growth is running at 15.3%. However, another mortgage lender announced difficulties and its stock fell over 40%.
Another positive driver last night was the weekly jobless claims figure. In any normal market the weekly fluctuations of the dole queue would be glanced at but quickly forgotten, but in this market a lower than anticipated number of claims proved encouraging ahead of tonight’s release of the July employment figures. Rarely has a monthly jobs growth number been so important to a market.
After bounce, sell, bounce on the local bourse yesterday, the SPI Overnight gained a further 66 points suggesting we might be a little more calmly positive today as well. Makes for a nice weekend. The only base metal movement of note was a plus 3% fall in nickel in New York.
Is it all over? Not by a long shot.
