FYI | Oct 09 2007
By Greg Peel
It started with the jobs number on Friday, and continued into Monday. The US dollar has been overdue some sort of a correction since its collapse post Fed cut and a healthy jobs market means a healthier economy than first thought. Or so the story goes.
There are many on Wall Street who scoff at the monthly jobs data, considering it a dangerously unreliable measure. Witness the revision of August from -4,000 to +89,000, nearly all of those government jobs. Who’s to say what the September revision might be in November? Nevertheless, good news is good news and the US dollar has found comfort in this piece of data given each “good” bit of news further reduces the chance of another slash and burn rate cut.
Further assisting the US dollar’s rally last night was a meeting of European finance ministers who expressed their concern over the rising euro. The ECB left rates unchanged last week, and clearly this has prompted a not so enthusiastic response.
The result of a stronger dollar, which rose 0.5-0.7% against major currencies, was to set off a tumble in US dollar-denominated commodities and commodity currencies. FNArena’s overnight price tables are a sea of red this morning.
Oil fell US$2.20 to US$79.02/bbl for November delivery. Spot gold gave back US$8.70 to US$732.60/oz. Base metals all fell in London, with copper (3%) and zinc (4.5%) the hardest hit. Having flirted with above 90c levels yesterday, the Aussie fell back to US$0.8933.
It was largely a quiet day on the stock market, although a more anxious one than not. As it was Columbus Day the bond markets were closed, given Chris famously borrowed a lot of money once (or something like that). Equity markets were open but thin, with no bonds to play with, no economic data releases, the third quarter earnings season about to get into full swing, and the minutes of the FOMC meeting – the one that cut the rate by 50bps – due for release tonight.
Falling commodity prices helped pull the general market down, with the S&P falling 0.3%. The Dow fell only 0.1% or 22 points, as stronger tech stocks balanced out the traditionals. Tech is the new tech, and the Nasdaq closed up 0.25% on the day.
Spooking the broad market somewhat was a profit downgrade from truck leasing company Ryder. Ryder’s CEO claimed that the economic slowdown was not confined simply to the housing market. This set off transport, and then retail went down in sympathy. There was good news for retail in the aftermarket however, as fine dining conglomerate Yum! Brands (it owns KFC, Pizza Hut and Taco Bell) announced a better then expected profit result. Yum’s fortunes were very much based on introducing obesity to China.
Bad news from Ryder and good news from Yum sums up the state of the US equity market at present. Stocks which draw the bulk of their income domestically are struggling. Stocks that draw 50% or more of their income globally could not be better, as they ride emerging market expansion. Google is a case in point. In anticipation of strong third quarter profits, the stock exceeded US$600ps for the first time last night.
Google listed in August 2004 at US$85ps. Its market cap is now bigger than Dow components Wal-Mart, Coke, Hewlett Packard and IBM.
The SPI Overnight fell 27 points.
