FYI | Sep 22 2007
By Greg Peel
What a week. The Dow and S&P 500 both ultimately posted their best week since March, both closing 2.8% higher. For the Dow, the previous high remains tantalisingly 180 points away.
The volatility that can often be associated with quadruple witching was absent on Friday. Volume was healthy but not as much as some might have expected. It was a tale of two sessions, dominated by reports from database software leader Oracle and audio equipment company Harman International.
The good news on Oracle emerged after the close of trade on Thursday. The company posted a 25% increase in quarterly profit as sales grew at their fastest pace in seven years. Oracle shares closed up 4.4% on the day. Elsewhere in the tech sector Google posted new highs. The Dow reached a lunchtime peak of up 111.
But after lunch news started to filter through that the private equity consortium of KKR and Goldman Sachs PE fund had withdrawn their US$8bn buyout offer for Harman, citing “changed conditions”. Harman’s shares fell 24%, and the Dow settled back to be up 53 points, or 0.4%, on the day.
Over in Inflation Central, there was a slight easing of the panic of the past few days. The US dollar pulled back against the yen, and it had hit a new low of 1.4112 against the euro before pulling back to 1.4089 – still down on the day however. The dollar also lost some more ground against the pound and the Canadian dollar. The C$ hit parity on Thursday for the first time since 1976. Yen selling translated into Aussie buying, with the battler up again to US$0.8668.
The ten-year bond reversed its slide, with the yield falling to 4.63% from 4.69%.
Gold fell US$2 to US$731.00/oz, with many a trader suggesting the precious metal is overbought for now. Oil slipped back US16c to close at US$81.62/bbl for the November contract. The October contract expired on Friday at a new all time high of US$83.32/bbl, but backwardation on the oil curve ensured November received the baton at a discount. Base metals in London were mixed, with lead the stand-out rising 4%.
Critical to ongoing weakness in the US dollar will be decisions made by central banks across the Atlantic. The big day will be October 4, when both the ECB and BoE make their rate decisions. Both had previously indicated that they were not inclined to cut rates, but things are a bit different now. French president Sarkozy has been pressuring ECB president Trichet to cut rates, but such a move is not a given. BoE governor King would not have cut rates two weeks ago, but he has become something of a lame duck and the British Chancellor may just force his hand. The dollar’s immediate fate lies with these two decisions. The RBA’s Stevens will not have the benefit of their thoughts when he announces Australia’s rate fate on October 3. No change is at short odds.
