Daily Market Reports | Feb 26 2008
By Greg Peel
The Dow closed up 189 points, or 1.5%, last night. The S&P gained 1.4% and the Nasdaq 1%.
Early strength on Wall Street had begun to wane in its usual fashion last night as once again any attempt at a rally lacked support. The economic data of note up to that point had been the January existing home sales number, which fell for the sixth straight month to a nine-year low. However, at 0.4% the fall was not actually as bad as consensus expectation. While it implies the US housing slump is not yet over, traders are beginning to suggest the slump may at least be slowing. Clutching at straws?
It mattered little, however, when at around 2.15pm the announcement came out that ratings agency Standard & Poor’s had decided to let large monoline bond insurers Ambac and MBIA keep their AAA ratings for now. This is a great relief, as it avoids the wholesale selling of various bond classes, including trillions in municipal bonds.
Both Ambac and MBIA – America’s two biggest bond insurers – had been on “negative review”, pending a possible ratings downgrade. Last night S&P announced that after reviewing the companies’ books it had decided MBIA could keep its rating while Ambac would keep it for now, but remains on “negative watch”. The industry in general would also remain on “negative outlook”. The news came as the announcement of a rescue package for Ambac appears to have been postponed for a week. Now that Ambac has been given a stay of execution, does it need the banks to stump up billions to rescue it? One presumes the answer is “absolutely” – Ambac is still on a fine line.
When the news broke the Dow jumped from up 50 to up 150 in a heart beat. Ambac shares jumped over 10% and MBIA over 15%. Therein followed a stumble, as the market waited to see whether any momentum could be established, but soon more buyers emerged to send the Dow up 189 points, having peaked at up 200. One might have expected the financial sector would have enjoyed a renewed boost of buying interest too, but earlier in the day various broking houses had been downgrading first quarter profit outlooks and recommendations for various institutions. Thus financials still finished the day in the red.
One of the reasons brokers were downgrading their counterparts and banks was on an assessment of the state of the IPO industry. IPO’s have all but come to a standstill in 2008, with only a paltry total having been issued to date. Underwriting share issues is the bread and butter of broking houses, beyond trading commissions. However, news came out last night that credit card giant Visa was planning an IPO of its own. Were Visa to list it would be valued in the US$15-18bn range, making it the largest IPO in US history, and second only to China’s ICBC Bank IPO on a global basis. Goldman Sachs and JP Morgan are said to be lead underwriters.
Nevertheless, shares in neither Goldmans nor JPM ended in the black last night. It is interesting that Visa should choose now to go public. After eight months of credit crunch and a possible US recession, credit card debt is an area of concern that ranks second behind mortgages on a consumer basis. Is Visa cashing in while it can? Readers may remember the public offering in leading private equity specialist Blackstone mid last year. Even Blackstone admitted at the time it could take a long while for shareholders to see a profit in the business, particularly if tax laws were revised. Nevertheless, the shares came on at a massive premium, the subprime crisis hit, private equity deals all but ceased, and Blackstone shares have dropped like…well, like a black stone.
What does Visa know?
The oil price pushed higher again last night – up US42c to US$99.23/bbl. Not only is there concern surrounding Turkey’s incursions into Iraq, we now have Iran back in the frame, threatening retaliation against anyone supporting new sanctions against the country in response to its ongoing nuclear program. If it’s not one thing it’s another – Iraq, Iran, Nigeria, Venezuela, and maybe throw in Palestine, Israel, Lebanon and Syria – which makes it hard to see just when a US slowdown might actually have the downward effect it should have on the oil price. In the meantime, wheat hit an all-time high last night. The CRB index continues to trade at new multi-year highs, despite platinum actually having a rare down-day.
The US dollar was mostly higher, sending gold lower. However, the US$5.10 fall in gold to US$939.50/oz was aided by news the US Treasury had changed its mind and would now support gold sales by the IMF. The IMF needs to sell gold because its operational costs have become crippling (some would say the IMF is now an anachronism, with a burgeoning bureaucracy and too many pigs in the trough), and some 12.9moz have been flagged. Mind you, the IMF was threatening to sell gold just before The Flood and hasn’t yet.
The Aussie continues to creep northward, aided by a falling yen against the US dollar and the prospects of more interest rate rises. It’s now at US$0.9273.
An unexpected jump in copper inventories saw the bellwether metal pull back a bit in London last night, dragging the rest of the complex down somewhat as well. Tin was the exception however, as it pushed on to set a new all-time high.
The SPI Overnight rose 71 points.
