FYI | Sep 05 2007
By Greg Peel
The ASX 200 closed yesterday at 6,293 which is only 144 points shy of the all-time high of 6,437. With another rally likely again today, we’re almost at the point where we can say: Correction? What Correction?
The Dow closed up 91 points or 0.7%. It rallied steadily all day to be up by 137 points before a typical last half hour sell-off. The S&P rose 1% and the Nasdaq 1.3%, reflecting the popularity of tech stocks which have become most sought after since prices all fell together. The climate is seen as healthy for tech stocks, for even if the US economy slows most of the growth of sales in the tech sector – computers, software, whizz-bang phones etc – is from emerging markets.
Volume was only slightly better than last week’s low numbers as traders made their way back after the summer break. Helping the mood along last night were the ISM manufacturing index for August which indicated the sector grew last month but by less than in July, and July construction activity which fell by 0.4%. Why are these figures so bullish? Because they’re not so bad to be bearish but not so good as to raise doubt over a Fed rate cut on September 18.
Elsewhere markets broke away last night from the trends that have been in place during recent turmoil. The US dollar actually rallied against all of the euro, pound and yen, which hasn’t happened for a while, and suggests carry trade unwinding is definitely over for the time being. This is good news for the Aussie which, buoyed by the GDP release yesterday, sits at US$0.8247.
But despite the rally in the US dollar, gold shot up US$10 to US$682.20/oz. Gold has broken out of its ever-diminishing triangle just as many had expected and has had a solid run in the past two days. As stock markets rally the need to liquidate assets has abated, but at the same time ongoing credit uncertainty leaves gold as a traditional safe haven option. And boosting the metal along has been strong physical demand from India and the Middle East where traditional ceremonial buying seasons are recommencing.
The news was not the same, however, in base metals. Having taken a hit on concerns of a slowing US economy at the depth of the correction, base metals have largely rallied back strongly in line with stock markets. But the reality is that inventories have been building up in the meantime and that’s been the focus of attention this week. After falls on Monday, base metals all closed down in London last night. Aluminium was down 1.6%, copper 1.8%, lead 3%, nickel 3.7%, tin 4% and zinc 3%.
The oil price was once again strong last night – another fillip for gold. While Hurricane Felix, which ravaged Central America as a category 5, has been downgraded to category 1, the weather bureau has suggested this hurricane season looks decidedly more ominous than the last. Oil for October delivery rose US$0.69 to US$75.08/bbl, and traders are now talking about US$80/bbl once more.
The SPI Overnight rose 86 points.
