Daily Market Reports | Jan 29 2008
By Greg Peel
While Australia was relaxing yesterday Asian stock markets decided to become very weak, with Japan and Hong Kong falling 4% and Shanghai 7%. The Chinese markets are proving to be very volatile recently, and are not unfamiliar with extreme levels of volatility. However, China remained relatively immune to the global credit crisis (at least in terms of stock market falls) up until this month, so there is still some scope for it to catch up with the rest of the world.
While Australia may have opened weak this morning on the back of Asia, the Dow chimed in with another 176 point rise, erasing the weekend profit-taking fall on Friday. It was not a volatile or heavily traded session, and the bulk of the rise occurred, as usual, in the last half hour. It has been put down to expectations the Fed will make another 50 point cut on Wednesday.
For a discussion on the Fed decision, see “The Week Ahead”.
It seems we are back to the old “bad news is good news” mode, as a reinforcement of the market’s belief in a 50 point cut came last night via some bad housing data. Not that bad housing data are any surprise anymore. New home sales in December fell by 4.7% and new home sales for the year 2007 fell 26.4% below that of 2006. The Dow added 176 points, or 1.5%, while the S&P added 1.7% and the Nasdaq 1%.
Gold was a big mover again last night, adding another US$18.70 to US$929.70/oz. The strength was due to further weakening in the US dollar, driven by heightened rate cut expectations, and news this weekend that South Africa has been suffering from rolling power outages which have forced gold mining operations to halt. Some of the world’s biggest gold mines fear miners would be trapped if power was to go off at the wrong time. The problem is systemic, and not due to some one-off malfunction or accident. There are no clues as to how long the power outages might last.
The weaker dollar pushed the Aussie higher once more, to a level of US$0.8888. The Chinese would be happy.
It was a quiet night for oil, with March crude adding US28c to US$90.99/bbl.
Base metals in London posted weak official closes earlier in the session before bouncing back to be largely unchanged following the surge in gold and the late rally on Wall Street.
In a quiet holiday session, the SPI Overnight rose 24 points.
It’s now all down to the Fed. The market will not like it if a 50 point cut is not forthcoming. Will the Fed continue to allow the market to dictate its actions?
