Daily Market Reports | Feb 01 2008
By Greg Peel
The Dow closed up 207 points or 1.7%. The S&P and Nasdaq also added 1.7%.
Yesterday was a turnaround day for Australia, one which smacked of an overextended “Get me out!” collapse that was met by a wave of buying. There was no individual trigger, other than last-day-of-the-month squaring, and as Asia opened it was rather mixed and uneventful. Perhaps no further sell-off in Asia was enough of an incentive.
That closed the month of January for Australia – the worst month for 20 years. From December 31 to January 31 the ASX 200 fell 11%, but at its nadir on January 22 was down 18%. By contrast, the Dow has fallen 4.6% in January, with a nadir of 10% on January 22 (bearing in mind it was rescued that day from a 500 point collapse by the emergency rate cut). Clearly Australia has suffered more in January from what is ostensibly concern about a US recession than the US has.
The answer probably lies in China, as although all effects are connected it is to China that Australia looks as an indicator of ongoing economic strength. Hong Kong’s Hang Seng index fell 16% in January, with a nadir of 22%.
So what will February bring? Well Wall Street has provided a kick start. The 207 point rally was the end result of some extraordinary volatility right at the death, but the feature of the day was an opening of down 192 that became a rally of 452 points to be up 260 with about fifteen minutes to go. In the last five minutes, up only 170 was printed before the final mark of up 207. Can we stop this ride please? I’m feeling a bit nauseous.
Initial weakness was due to some more weak economic data, irrespective of the fact we’ve had 125 points in rate cuts in January. The data look back a month or more, while rate cuts don’t really have an impact for at least six months or maybe a year. But what the hey – weak data are a reason to sell nevertheless. For starters, weekly jobless claims jumped 69,000 – the biggest jump since the week after Katrina. These numbers are notoriously volatile, but that one was a doozie. Tonight brings the January payroll numbers.
Inflation adjusted consumer spending grew by 0% in December. Real after-tax income rose only 0.3% which is not considered enough to sustain spending. All further evidence of a weakening economy.
But the turnaround news came out of the precipitous bond insurance market. MBIA released its quarterly result, which was a US$2.3bn loss. However, the important point was that the CEO reassured Wall Street that MBIA would not go bankrupt, and indeed there was enough liquidity in the company -despite losses, and despite exposure to subprime securities – to ensure an AAA rating would be retained. This was news Wall Street wanted to hear, for if MBIA were to be de-rated so would billions in muni-bonds, starting a selling stampede. The buyers flooded back.
The US dollar had a quiet night, leaving the Aussie unchanged at US$0.8967. Gold slipped back US$4.20 to US$925.40/oz. Oil slipped US58c to US$91.75/bbl.
But the base metals were big movers. London’s official close was muted but thereafter metals took off, spurred on by power outages causing supply disruptions in both South Africa and China, by end of month book-squaring, and by a raging Dow. Copper, aluminium and lead rose 3% while zinc added 6%. Nickel seemed to miss out.
The SPI Overnight put on a timid 77 points, apparently spooked by the sudden last minute drop in the Dow. It had been up 114 points previously.
