FYI | Sep 12 2007
By Greg Peel
The sixth anniversary of 9/11 came and went without incident last night, a sombre mood perhaps betraying Wall Street relief as each hour passed without anything blowing up.
The Dow opened higher and largely rallied steadily throughout the session, albeit with the usual volatile up-squaring in the last half hour. Volume remained light, as it has done over the past week or more. The Dow finished up 180 points, or 1.4%. The S&P put on 1.4% and the Nasdaq 1.5%.
As far as trading days go, this was a strange one. The biggest news of the day was no news at all. Fed chairman Ben Bernanke addressed the Bundesbank in Europe and made absolutely no allusion to his intentions come September 18. Without any direct contradiction from the chairman, Wall Street was thus happy to maintain its assumption that a 50 basis point rate cut is in the bag. So it was a jovial mood when only last Friday the jobs data that specifically shifted rate cut predictions from 25 to 50 basis points sent the market tumbling. Wall Street moves in mysterious ways.
There was, however, other positive news. The day began with the release of the July trade data, which showed the US trade deficit edged down 0.3% following a pick up in exports. Exports have been boosted by a lower US dollar. Mickey D came to the party (that’s floor-speak for McDonald’s, stock code MCD) and announced an 8.1% increase in same store sales in August. God bless America. Mickey D, a Dow component, rallied 3.2%.
Among some other positive snippets there was also the news that Countrywide, despite having enjoyed a US$2 billion injection from Bank of America last month, was allegedly in talks with Goldman Sachs to orchestrate a further bail-out of the troubled mortgage lender. JP Morgan Chase, Citigroup and a number of hedge funds have been implicated as the cavalry. This sent Countrywide’s shares over 2% lower on the day. They are now down over 40% from their high.
The other seemingly counterintuitive news of the day emanated from the OPEC meeting, where delegates agreed to increase oil production by 1.4 million barrels per day. In response, the oil price for October delivery jumped another US74c to US$78.23/bbl. This is a new record closing high for the front month, eclipsing July’s US$78.21/bbl close. The all time intraday high is US$78.77/bbl.
Why did the oil price rally on increased production? Mainly because OPEC meetings are a load of rubbish. The delegates meet routinely with great gravitas in order to set production quotas that balance the best attainable price against the risk of upsetting demand, and then go home and totally ignore them. The whole thing has been a giggle for years. The world knew that OPEC was already running at 900,000bpd over the previous quota, so the effective production increase was really only 500,000bpd. The world also knows this new target is equally meaningless, so why trade in accord. The reality is that refinery problems and other supply-side issues are affecting tighter inventories, and the weather remains volatile. Oil is still a buy.
The US dollar continued to retrace against the yen last night, rising back to 114.30. The dollar fell once more against the euro and pound however, and is once again testing the lows against the euro. Last night saw $1.3832 dollars to the euro against the low of $1.3852. The Aussie pushed up to US$0.8349.
The weakening dollar is one reason why not everybody on Wall Street is expecting a 50 basis point rate cut, or indeed any rate cut. To slash rates to save the US economy would potentially be to send the US dollar into a spiral, which is an unpalatable side effect. They say that flying a helicopter is like trying to balance on a beach ball in a swimming pool. No doubt that’s exactly how “Helicopter” Ben Bernanke is feeling at the moment.
The gold market is suggesting that a weaker US dollar is pretty much a given. The precious metal rose another US$8.90 to US$711.30/oz last night. Gold has broken the US$700 hoodoo level, is being supported by funds buying, seasonal physical buying from India et al, and also yesterday’s news that Newcrest (NCM) is buying back its hedge book. And where are the central bank party-poopers? Nowhere to be seen as yet.
Base metals followed the Dow up last night with the stand-outs in London being lead and tin (up over 3%) while copper put on 2%.
The SPI Overnight added 75 points.
One market to watch today might be China’s, which fell 4.5% yesterday. Does this matter anymore?
