Daily Market Reports | May 07 2008
By Greg Peel
The Dow closed up 51 points or 0.4% to be back over 13,000. The S&P and Nasdaq each added 0.8%.
Early earnings reports on Wall Street were somewhat of a litany of disaster. This ensured the Dow was down over 100 points early and that the S&P dipped below 1400. First up was sponsored mortgage lender Fannie Mae, whose US$2.2bn loss was worse than expected and the lender’s third quarterly loss in a row. Fannie announced it would slash its dividend and seek to raise US$6bn in capital.
Then came Swiss-based investment bank UBS, who announced a worse than expected US$11bn loss, including US$19 billion in write-downs. UBS plans to cut 5,500 jobs and offload US$15bn in dodgy securities to hedge fund BlackRock.
Number four commercial bank Wachovia chimed in with an announcement that it was doubling its previously reported first quarter loss to US$708m after taking a closer look at its life insurance portfolio. Oops – sorry about that.
And finally major builder D.R. Horton announced a loss that at US$1.3bn was much worse than expected, and halved its dividend.
Then Fed chairman Ben Bernanke added to the mix by warning of spiralling mortgage foreclosures and the need for the government to act to save desperate homeowners. This was clearly a deliberately timed appeal to Congress which currently has before it a bill to provide US$300bn in mortgage assistance for those Americans who had eyes bigger than their pockets and got themselves into trouble through a combination of rapacious mortgage lenders and their own sad greed. Many oppose the bill as a kick in the guts to those Americans who were prudent and played by the rules.
This series of weak news was enough to set the US dollar falling against all currencies once more. With no let up in supply disruptions, the weaker dollar, and another report from Goldman Sachs suggesting US$200 oil was coming, oil rose another US$1.87 into blue sky at US$121.84/bbl.
So what does the stock market do with all this in front of it? It rallies. The Dow put in a 150 point turnaround. Fannie Mae closed up 9%. UBS closed down 1.6%. Wachovia closed up 1%. Horton added 5%.
The turnaround was attributed to Fannie Mae, following “soothing” words from the CEO in the conference call that the worst was behind the lender and that it had increased its new mortgage market share to 50%. In cutting its dividend and raising more capital Fannie will also satisfy government requirements that will allow it to increase the price threshold on “conforming” loans – those which are eligible for an interest rate some 1% lower than the “jumbo” rate. Furthermore, the government will allow Fannie to reduced its required surplus capital holding against mortgage loans from 20% to 15%.
Critics shake their heads in disbelief.
The US dollar’s fall allowed gold to claw back another US$1.80 to US$875.70/oz, while the Aussie, which dipped slightly on no interest rate rise, but recovered on a hawkish RBA statement, was up US0.3c to US$0.9499 over the 24 hours.
Base metals, which have been stuffed around by holidays, closed around 2% higher. Copper had surged on Comex yesterday by over 10% at one point on alleged technical buying, but the move was tempered as London reopened with the news that mineworkers had come to an arrangement with Codelco in Chile to bring an end to the three-week strike.
The SPI Overnight was up 42 points.
The lead-in for Wall Street tonight will be bolstered by late positive earnings reports from Cisco Systems, which is up 1% in the aftermarket, and Dow component Disney, which is up 3%.
