Daily Market Reports | Apr 15 2008
By Greg Peel
The Dow lost 23 points, or 0.2%, while the S&P lost 0.3% and the Nasdaq 0.6%. The market bounced around in a smallish range, unwilling to sell down much further following Friday’s big slide. The focus is on quarterly earnings reports, although there is now plenty of expectation of poor results and guidance built into prices.
Nevertheless, Wachovia Corp still managed to surprise. Wachovia is one of the Big Four commercial banks along with Citibank, Bank of America and JP Morgan Chase. A US$393m first quarter loss was more than the Street had anticipated, and adding to the weak sentiment was the announcement the bank would cut its quarterly dividend by 41% to US37.5c and issue another US$7bn in capital. The capital adjustments would have come as no surprise to astute banking analysts such as those at Oppenheimer & Co who predicted all banks will be cutting dividends and raising capital before too long. But those who have taken the Fed action to mean that financials must now surely rise, rather than just not go bankrupt, were forced to sell Wachovia’s shares down 8%.
The entire financial sector was dragged down yet again, with the focus this time on the commercials. Citigroup lost 3.6%, BA 3.7% and JP Morgan 2.4% ahead of their own results due shortly.
There was good news last night. The March retails sales figure came in at a rise of 0.2% following February’s sharp fall of 0.6%. Maybe the consumer slowdown won’t be so dramatic after all? The number is somewhat misleading when you consider a 1.1% rise in the value of gasoline sales for the month was part of the break-down, however, but given economists were expecting a net flat result the market is happy to take the 0.2.
This number helped to quell thoughts of further substantial selling, and ironically the oil market also took it as a bullish sign. The oil price rose US$1.62 to US$111.76/bbl.
Oil’s movement was assisted by some more weakness in the US dollar. The G7 finance ministers were hoping that the introduction of scary words into their post-meeting statement such as “excessive volatility” of currencies would be enough to stem the dollar slide. Such words are only used by the ministers in extreme circumstances. However traders took the G7’s accompanying lack of any specific action or plan for action to mean there would be no cavalry arriving, and so sold the greenback down yet again against all major currencies.
Dow Jones reports French finance minister Christine Lagarde as suggesting the currency markets have missed the point. They don’t fully appreciate the magnitude of the language shift. Is she saying “Mon Dieu, don’t you see we are dropping ze bloody big hint?”, implying that the G7 stands ready to intervene in currency markets to save the US dollar if the markets can’t do it themselves? There was at least one suggestion following the meeting that the markets will push the G7 to see just how far they can go before some sort of action is triggered.
So in the meantime, the dollar is weaker. The gold market wasn’t playing the game last night though, with the precious metal actually falling on dollar weakness but only by US50c to US$924.40/oz. If the G7 does intervene in the currency markets it could be curtains for gold in the short term. In the longer term, any on-market transactions from central banks would still need to be supported by realistic changes such as a drop in the European cash rate, which seems very unlikely at present. So in the longer term, if any dollar-propping is overtly artificial then gold will regain its value over paper money in due course. The Aussie was little changed at US$0.9269.
The base metal markets in London remained mostly confused last night, not sure whether to rally on supply issues or fall on weaker equities. They initially fell by the mid-session official close – aluminium by 1% and copper by 1.5% – but pulled back somewhat when the dollar began to weaken. Metals are poised on a cusp, and one gets the feeling a particular trigger could send them moving sharply in either direction in the short term.
The SPI Overnight fell 7 points.
The US market will probably remain quiet again tonight, ahead of Wednesday’s CPI figure and more earnings reports to come. The CPI has the power to move the dollar, but given the EU reports its CPI just ahead of the US, a stalemate could still be the result.
