Daily Market Reports | May 09 2008
By Greg Peel
The Dow closed up 52 points or 0.4%, while the S&P gained 0.4% and the Nasdaq 0.5%.
It was a quiet day’s trading which saw a rally fail before a bit of late buying. The Dow was up 95 points at 2pm following yesterday’s 200 point loss but gave it all back towards the close. A late spree saw the index push up to its conclusion.
It was a bit of a mixed bag as energy and material stocks were sought after while financial stocks were again weak. Oil is still very much in focus, and it’s never say die as crude added another US16c to US$123.69/bbl but carried on into late electronic trading to hit US$124.57/bbl. Even cab drivers are now arguing the case as to whether it’s all about speculation, or whether it really is about demand and supply.
There was good news as retailers’ monthly same-store sales results came out looking a lot more positive than was feared. This, along with another small fall in the weekly jobless numbers, helped to propel the Dow to its highs of the day.
But every silver lining has a cloud, and notable within the same-store figures was a shift towards good numbers for discount retailers offsetting bad numbers for the swankier names. This can only suggest Americans are reining in their spending in the face of various woes, including a new record gasoline price of US$3.65/gal (just over A$1.00/l). Clothing names were particularly hard hit, and what is not apparent within the figures are margins achieved on the sales. Anecdotally, retailers are slashing prices to the bone to shift inventory.
There was also focus on the other side of the pond last night as both the Bank of England and European Central Bank announced monthly interest rate policy. No one was surprised that there were no changes from 5% and 4% respectively, but there was disappointment in Europe as accompanying remarks suggested if you’re looking forward to the ECB cutting its rate due to economic weakness, don’t hold your breath. Inflation is still too much of an issue.
This was enough to send the US dollar packing yet again, and subsequently gold continued to look good, climbing $14.70 to US$883.00/oz. The Aussie snuck up to US$0/9437.
As for commodities…there is an increasing dislocation between the movement in commodity prices and the US dollar. Yesterday we saw oil surprise by rallying in the face of a rising dollar. But realistically oil has put on 10% in May while the US dollar has yo-yoed, which takes some of the wind out of the “speculative only” sails. Last night it was the turn of base metals to buck the system.
Base metals have been fannying about in tightish ranges all month, not quite prepared to go up and not quite prepared to go down (if you don’t count copper’s “Silly Monday”). However last night, as the US dollar fell, it was revealed copper inventories had grown. This was a surprise, and enough to send copper tumbling. The metal bounced back somewhat at the close to be down over 1%. Lead copped it sweet, falling 4%, while only tin escaped some long awaited weakness.
The truth is copper inventories rose from almost nothing to a little bit, but copper has been looking for an excuse to fall, particularly since the strike in Chile ended. And it thus fell in the face of a falling dollar. And now it appears there is strike talk in Peru.
Oil was only slightly higher and metals were lower, yet energy and materials were the winners on Wall Street last night. Go figure. Financials were weak simply because they should be. But as the SPI Overnight closed up 13 points, following a gravity-defying performance yesterday, general insurance giant and Dow component AIG announced a shocker in the aftermarket.
AIG’s loss for the quarter, at US$7.8bn, was double what the Street had been expecting. The company wrote down US$9bn on the value of credit derivatives and booked US$6bn in investment trading losses. It also announced it was in the market to raise US$12.5bn in new capital. And it put its dividend up! Has someone been chatting to Gail Kelly?
AIG shares are down 7% in the aftermarket, ensuring a weak lead-in to tonight’s session, particularly in financials.
