FYI | Dec 18 2007
By Greg Peel
The share price collapse of Centro Properties ((CNP)) in Australia yesterday was not lost on the US market which recognised the implications of a REIT holding its majority portfolio in US shopping malls being unable to roll over its finance. This was just another piece of the puzzle of growing despair on Wall Street as Christmas approaches for one, but more importantly as the end of the US financial year approaches.
The Dow declined relatively steadily all day to be down 172, or 1.3%, on the close. The S&P 500 fell 1.5%. But if you need an indicator of how all hope is starting to fizzle out of the market, just look at the Nasdaq – down 2.3%. The tech stocks that have become both a safe haven and an indicator of the strong US export economy were sold down heavily last night.
It was not a high volume session, and given that the financial sector actually held up fairly well in the face of across the board weakness in other sectors probably suggests an element of book-squaring is going on with a lot of the market short financials and long tech. Oil stocks were also sold down last night without a huge move down in the oil price, which again points to traders taking oil sector gains off the table ahead of year end. Friday is “quadruple witching” in the US, when individual stock and stock index futures and options all expire simultaneously. This can often cause some volatile shifts in the lead up.
But paper shuffling aside, the market is just not in a buoyant mood. On Sunday night former Fed chairman Greenspan suggested the US economy was in danger of facing a period of stagflation. Late on Friday Moody’s warned that several bond insurers could lose their AAA ratings due to subprime exposure. The New York Fed’s (Empire) measure of economic activity was released last night and was lower than the market had hoped. The NAHB housing index for November held steady, but at the lowest recorded level since 1985. Indicative retail sales figures are showing that US Christmas shoppers are staying away in droves.
The mood of weakness continued through the day despite some US$20bn worth of various M&A deals being announced to the market.
There is an air of anxious anticipation as the investment bank fourth quarter indications continue this week, with Goldman Sachs reporting tonight, Morgan Stanley on Wednesday and Bear Stearns on Thursday. What will be important is not so much the magnitude of any further write-downs – indeed, Wall Street would much prefer those to be large and definitive – but what first quarter guidance is provided.
The US dollar was also weaker again last night after a relatively strong last week. The dollar also fell against the yen, and yen buying usually transfers to Aussie selling. The Aussie slid about a third of a cent to US$0.8567. Gold also fell despite the dollar – US$1.30 to US$791.80/oz – which reflects a fall in the oil price and probably squaring up in this commodity as well.
Base metals in London were again weak to the official close in thin trading driven by the same economic concerns and by some technical selling. Copper reached a nine-month low, while zinc was hammered down nearly 4%. There was some short covering in the late session however, but New York prices were down across the board mostly 1-3%.
Despite the very ugly day on the Australian bourse yesterday, the SPI Overnight still fell another 84 points from yesterday’s futures close.
