FYI | Oct 11 2007
By Greg Peel
After Tuesday’s rally sparked by the release of the Fed minutes, AP has reported at least one trader suggesting that “looking in the rear view mirror” is perhaps not that helpful after all. Couldn’t agree more. As speculation subsided on whether or not the Fed would cut again and whether or not the economy was receding the real news began to impact last night – actual third quarter profits.
As profit reporting is more stock or sector specific than broad market specific reporting season can bring some mixed movements, and last night was no exception. The 30-stock Dow fell 85 points or 0.6% while the 500-stock S&P fell only 0.2% and the 3113-stock Nasdaq actually rallied 0.3%. Gotta love those techs.
The Dow was weighed down by a poor profit report from aluminium giant Alcoa, which had been released in Tuesday’s after-market. Alcoa cited increasing costs against a lacklustre aluminium price in justifying a profit increase of only 3%. Revenues actually fell. The stock closed down 2.5% on the day, and may offer some sort of warning for resource stock investors in Australia. Last local half-year reporting season, analysts were constantly bowled over by increased costs. At least a strong currency reduces the impact, but so too does it reduce revenues.
Also kicking the Dow down was news that Boeing will be delaying the launch of its 787 Dreamliner by six months. You can just see the knowing nods of relief from Airbus.
In the broader market, a profit warning by oil refiner Chevron (increased costs) was also a negative although another up day in the crude price dampened the fall. The surprise was a positive result from warehouse retailer Costco. Wall Street had feared the worse, and as such the stock rallied 9% on the good result and dragged the entire retail sector up with it. Recession? What recession? Friday night should be interesting, given September retail sales figures are released.
Well may we say God save the US economy because nothing, it seems, will save the US dollar. The dollar fell against major currencies again last night, although early falls were pared back later in the session. The dollar supposedly fell as traders continued to scratch their heads over the Fed minutes, and given a less than expected increase in August wholesale inventories. August is now several life times away, so it seems that while all economic news is good news for the stock market, the reverse is true for the greenback.
The falling dollar once again kicked along commodity prices. Oil rose US$1.04 to US$81.30/bbl, gold rose US$3.00 to US$740.30/oz, and base metal prices in London closed before the recovery in the dollar set in. Hence copper, nickel and zinc were all up around 2%.
The SPI Overnight fell only 11 points, no doubt recognising the stock-specific Dow move against commodity price rises.
