Daily Market Reports | Feb 09 2008
By Greg Peel
There was not a lot to be encouraged about on Wall Street this last week, as thin-volume rally attempts continually gave way to heavier-volume selling. The Dow closed down 64 points, or 0.5%, on Friday, finishing the week down over 4%. This was the worst week of trading, percentage wise, since March 2003.
The index did not finish on its lows, however, as a mark of -144 was made earlier in the session, but the gains of the previous week, in which the Dow bounced out of its January slide, are slowly being erased. The S&P closed down 0.4%, but one little ray of hope for the session was the announcement by Amazon.com of a US$1 billion share buyback. This helped the Nasdaq to actually close up 0.5% on the day.
Elsewhere the mood was mixed to sombre as the quarterly result season pushed on. There were some good results, including that of Dow component McDonalds, but mostly reports were sour and guidance concerning. In discussing their round of weak numbers released this week, retailers suggested that it was not only mortgage problems keeping the customers away, but the impact of high oil and food prices. And as these comments were being made, news of further supply disruptions in Nigeria sent oil soaring back US$3.66 to US$91.77/bbl.
Oil appears to be attached by a bungy cord to US$90/bbl at present. By rights the commodity should be trading lower, given the sheer weight of recession speculation, but the demand/supply balance is the reality that won’t allow this to happen. Now that oil has come off at least from the US$100/bbl mark, talk is that OPEC will decide to trim back production at its meeting next month. For some reason this is seen as important, despite the fact OPEC countries only ever say one thing and do another.
And agricultural commodities continued to push into record territory this week, again with little sign of ultimate respite from this upward trend. A bumper crop or two might take the heat out of the market temporarily, but it is the “feed the world” theme driving high prices, along with sanctioned biofuel substitution.
Overlaying the problems of weak results and inflation concerns is the ongoing despair surrounding the potential downgrading of bonds and bond insurers by the ratings agencies. Some smaller insurers have now been downgraded, with the big two of MBIA and Ambac still hanging in the balance.
It was time for the US dollar to slip back again last night, following a round of mostly short-covering. Gold responded by rising US$14.30 to US$922.90/oz, spurred on by news that two major global gold producers were looking to close out their hedge books, and by technical triggers that sent commodity funds back into buying mode. The Aussie continues to tread water (US$0.8955) amidst the counter influences of the US dollar and the yen.
Asian traders returned to the base metals market last night after their holiday break. It was a rush to cover positions as ongoing supply disruptions, particularly in South Africa, maintained their influence. Throw in a weaker dollar and a technical scramble ensued, as most of the complex followed the lead of bellwether copper. Copper traders have been surprised by falling inventories. The catch-up saw copper trade up another 2% in the late London session, while nickel added 3.5%, zinc 4% and lead 7%.
The SPI Overnight fell 5 points.
