FYI | Oct 30 2007
By Greg Peel
The Dow rose 63 points or 0.5% last night as traders set their positions ahead what is an expected rate cut from the Fed on Wednesday. The S&P rose 0.4% and the Nasdaq 0.5% Volume on the NYSE was understandably light, with advancers leading decliners by 4 to 3. Tonight’s activity will no doubt be minimal as well.
Wall Street has decided there will be a 25 point rate cut, and some are expecting 50 points. Driving sentiment in recent days has been the slew of alarming results from the financial sector. Merrill Lynch’s extraordinary loss and ominous guidance has been taken as a sign the financial sector is still in trouble, and traders expect this to be the deciding factor in the committee’s discussions.
If the Fed does cut, it will do so in the face of rising inflationary pressures. It never rains but it pours in the oil market, so if supply issues and tensions in the Middle East were not enough a storm in Mexico shut down production last night and sent oil up another US$1.67 to US$93.53/bbl. Fed decision aside, oil traders will be looking to Wednesday’s US inventory numbers as a potential trigger to send the oil price into three digits. The situation between Turkey and Iraq is only deteriorating.
The US dollar continues to weaken ahead of the expected cut, touching eight year lows against the euro. The Aussie dollar is trading above US$0.92. This is not an environment for gold to go down, and so it put on another US$7.40 to reach US$790.90/oz. Silver’s long awaited break-back over US$14 has been met with buying exuberance, last night putting on another US31c to US$14.48/oz.
Gold has now moved from US$750 to US$790 with barely a breather over the course of a week. Many a trader has been expecting a pullback, but it has not been the case. As the gold price rises, so do the number of open long positions on the Comex futures market. As positions near a record, traders are very wary of a potentially sharp fall.
Base metals in London were unremarkable last night, and the SPI Overnight added 18 points.
Associated Press reports 300 of the S&P 500 companies had reported their third quarter earnings by last Friday. The net result is a 4.9% decline in profits, which is not exactly the stuff of a positive market. However, breaking down the sectors finds eight of the ten S&P sectors collectively grew profits by 8%, with five sectors hitting double digit gains. The losses – and they are extreme – are all concentrated in the housing and financial sectors.
It’s now a waiting game.
