Daily Market Reports | Feb 15 2008
By Greg Peel
Well at least traders on the floor of the NYSE had something to cheer about towards the end of a weak session. No, it wasn’t some good economic news, it was simply the arrival of the Sports Illustrated swimsuit models, there to ring the closing bell on Valentine’s Day. One cameraman managed to sum up the general response as he panned across the glamorous group and settled on a sign that simply read “nyse”.
But it was mostly one-way traffic over the session as the Dow slid 175 points, or 1.4%, while the S&P lost 1.3% and the Nasdaq 1.7%. Driving the weakness was the testimony of Fed chairman Ben Bernanke, flanked by Treasury secretary Hank Paulson, to the Senate Banking committee (a regular requirement of the job).
“The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,” Bernanke explained. “To date, the largest economic effects of the financial turmoil appear to have been on the housing market which, as you know, has deteriorated significantly over the past two years or so.”
Well thanks for clearing that up, Scoop. Seriously though, the tone of Bernanke’s comments suggested that following months of either ignorance, denial or intentional underplaying, Bernanke is now trying to get ahead of the game, rather than trailing along behind with the magic sponge. He indicated yet again that the Fed would do whatever was necessary, which means more rate cuts.
On the subject of recession, both Bernanke and Paulson declared they did not think US growth would turn negative. Their forecasts still call for growth, if only very minimal growth. Due out next week there will indeed be downgraded forecasts – weaker, but still positive.
It wasn’t exactly stirring stuff for a market looking for some more comforting words following a bit of buying this weak. Time for the tenuous longs to cut and run once more. It is notable that once upon a time any talk of a Fed rate cut would send the market scrambling well into the green. But after several ineffective cuts to date, dour growth talk has proven enough now to do the opposite.
Bernanke’s testimony negated what was one small bright light – the news that the US trade deficit finally narrowed in December, having grown for five straight years. The 6.9% fall (representing US$59bn) was due to higher exports and lower imports, driven by a weaker dollar and reduced local demand. The weekly jobless claims number also reported a slight fall. This would have been of little solace to Bank of America employees who have been shown the door this week. The investment banking division types – used to nice fat bonuses – were given only two weeks’ severance. Actual bonuses were paid not in escrowed stock, but in 12-month escrowed cash. Gee thanks. Suffice to say this will be yet another law suit born out of the subprime crisis.
Is there a publicly listed law firm on Wall Street? Buy now.
In other disturbing news, Moody’s downgraded bond insurer Financial Guaranty Insurance from AAA to A3. Heavyweight MBIA told Congress it has plenty of cash to make good on claims, and that it needed neither a bail-out nor increased regulation. Yeah right. The regulators are moving in anyway.
There was another big jump in the price of oil last night. March crude rose US$2.19 to US$95.46/bbl. The rise was triggered by an EIA report that suggested US inventories had risen a lot less than expected, and was exacerbated by options expiries. Adding to strength was the weaker dollar, and news from Japan that its fourth quarter GDP rose an unexpected 3.7%.
The weaker US dollar pushed gold up another US$4.30 to US$908.20/oz, while the Aussie’s rise back to US$0.9028 came about as a result of the Australian jobs number release yesterday.
There were some big moves in US Treasuries overnight as inflation concerns continue to push the long end. The 2-years held fast at 1.90%, while the 5-years added 4bps to 2.77%, the 10-years 10bps to 3.82%, and the 30-years 12bps to 4.65%. More Fed cuts, higher oil prices, and stronger than expected retail sales have been steepening the curve rather ominously.
In London it was the night for aluminium to star, while the other metals were mixed. Supply concerns, particularly out of South Africa, pushed the forgotten metal up 5%.
Yesterday the Australian market jumped strongly out of the gate before wavering somewhat late morning. But a second wind arrived in the form of that Japanese GDP number, pushing the Nikkei up over 4%. Hong Kong chimed in with a similar rally. The sour day on Wall Street has, however, sent the SPI Overnight back down 88 points.
