Daily Market Reports | May 02 2008
By Greg Peel
Wall Street traders had a restless night’s sleep on Wednesday night, mulling over the Fed statement and its implications. Is the Fed on hold or isn’t it? The bulls took it that way but the bears raised doubts. Please give us a sign.
It was a subdued start to the session as still there was uncertainty. But slowly over the morning the mood began to change as a raft of economic data was released.
Consumer spending rose 0.4% in March. Economists were expecting 0.3%. The ISM manufacturing index was steady at 48.6 in April. Economists had been expecting a fall to 48.0. The ADP jobs number indicated 10,000 jobs were added in April. Economists expect the official jobs number, due tonight, to show a loss of 50,000-80,000 jobs.
These were the signs. Consumer spending better than expected, manufacturing not as bad as expected, jobs much better than expected. With numbers like these, the Fed can be more relaxed bout the US economy. It can stay on hold. It can fight inflation. It can turn the US peso around.
Bring me my rose-tinted glasses Doris, I’m going into to buy.
And buy they did. The Dow rose 190 points or 1.5% to close at 13,010. The S&P rose 1.7% to close at 1409. And the Nasdaq – the Nasdaq added 2.8%. This is officially a break-out on both the Dow and the S&P. This is bullish. The big recipient of the buy trades was tech, led by chips stocks. Following closely were the financial stocks. The financial sector index rose over 3% with Citigroup – who yesterday indicated a total of US$4.5bn raised in fresh, diluting capital – rose 7%.
The losers were energy and materials, but the real losers were the commodities themselves. The US dollar, having been in two minds on Wednesday, staged a solid rally against all currencies. The euro fell 1% to US$1.5464 – now a far cry from US$1.60. The Aussie completely gave back the cent it picked up yesterday, to be back at US$0.9335.
Gold was hit hard, falling US$26.00 to US$851.90/oz. Oil copped it from all sides. With the Scottish strike now ended, and inventories showing growth, the market learned last night that oil was now flowing again in Nigeria. Oil fell over US$4 to US$110.50 to hit support. However, it rallied back towards the close to be down only US$2.17 to US$112.52/bbl. Technical stop-loss trades had set the early scene, but the buyers returned.
Patience finally ran out in the base metals market. While the early London official close still reflected indecision after Wednesday, the late market trading caught the rising US dollar. May Day is a holiday in the UK and Europe, although the LME remains open. In a thin market, copper fell 4%. Lead fell 6%, zinc 3%, aluminium 2.5% and nickel 0.5%.
The long financial/short commodity trade is back on in earnest. Wall Street is now in full optimism mode as stock markets return to break levels not seen since early January. The economic data are looking good.
Or are they?
While consumer spending rose 0.4%, inflation rose 0.3%. Hence real spending only grew by 0.1%. Incomes rose 0.3% in April, meaning in real terms they were flat. The quarterly GDP report, released yesterday, showed consumer spending rose in the first quarter at the slowest pace in seven years.
At 48.6, the ISM manufacturing index showed its third month of decline. Anything under 50 means going backwards. New orders are falling, but input prices continue to rise.
The weekly jobless claims, released last night, showed an increase of 35,000 to 380,000. The market was expecting 356,000. Continuing jobless claims rose 74,000 to 3.02 million – the highest level since May 2004. The market often looks to the ADP employment number as an indication of what the official number will be. Lord knows why – the two never bear any relationship to each other.
March construction fell 1.1%, driven down by the biggest drop in residential building demand in 26 years.
One can interpret these numbers as one likes. The reality is that Wall Street is now bullish, and barring the next disaster the mood is set for May to be another positive month. April was the first positive month since October. The sceptics? They still think there’s lot of short covering going on. They also suggest the big fall in the VIX volatility index is as much an indication of misplaced complacency as it is of reduced risk. America is about to be handed a nice stimulus cheque, so spending should look pretty good from here, until its spent. Tonight’s job numbers could be interesting.
The SPI Overnight rose 78 points.
