Daily Market Reports | Jun 04 2008
By Greg Peel
The Dow fell 100 points or 0.8% while the S&P fell 0.6% and the Nasdaq 0.4%.
It was actually a bright start on Wall Street as the April factory orders number – that’s orders from US factories – jumped by 1.1% when a 0.1% increase was expected. If you take out orders for petroleum products (bearing in mind this is a dollar-value gauge) the rise was only 0.4%, but this was still better than expected.
But the market struggled nevertheless. Next we had the first speech from Fed chairman Bernanke specifically on the state of the economy in two months, and Uncle Ben was in a rather disgruntled mood. It seems those speculators under the bed are not just responsible for pushing up the price of oil, they’re responsible for selling down the US dollar as well! Gladys – get me my shotgun.
Bernanke suggested the Fed would not tolerate further weakness in the US dollar, signalling that the central bank had now well and truly switched its focus from saving the economy to fighting inflation. And in the strongest hint yet that the next move in interest rates will be up, not down, Bernanke told speculators that if they bully the greenback anymore the Fed will have little choice but to act.
This from the man who cut the cash rate from 5.25 to 2%.
The result of this unambiguous indication was that contrite and now terrified speculators dutifully bought back their short dollars in fear of Uncle Ben taking his belt off. They pushed the greenback up strongly against all major currencies. This had the desired effect, because oil fell US$3.45 to US$124.31/bbl.
This should have been good news for Wall Street, or at least all sectors outside energy-related sectors. But still the Dow failed to rally. Part of the timidity might be put down to the auto sales figures.
Auto sales for the the “Big Three” US car manufacturers were down between 16% and 28% in May, while sales of Toyotas fell only 4%. For the first time in history, combined sales of Asian makes were greater than combined sales of American makes. General Motors once claimed over 50% of US market share, but that figure fell to under 20% for the first time in May.
While America rails at those evil speculators, consider that since 1992 the single highest selling vehicle in the US has been Ford’s F-series truck – basically a ute on steroids. But this year the F-truck has been taken over by the enduring Toyota Corolla, as well as the Camry and the Honda Accord. Finally the message is getting through.
But while Wall Street was pondering factory orders, the dollar, oil and cars, the financial sector rumour mill was winding back up into full swing once more. A Wall Street Journal article suggested Lehman Bros was about to hit the market to raise US$3-4bn of fresh capital. A Lehman spokesman declined to comment. Analysts are now predicting Lehman would lose more in the second quarter than current guidance for a US$300m loss. However, analysts also believe Lehman’s capital position is sufficiently sound.
As was Bear Stearns’ capital position, but rumours are a dangerous force. By lunch time, word went out that Lehman had actually gone to the Fed’s rescue window – the one introduced in the wake of Bear Stearns – to seek emergency capital. Lehman shares fell over 14% to US$28.90. The March 17 low in the shares was US$31.75.
This time Lehman came out and emphatically denied it had been to the window, nor that it had any need to do so. The shares bounced, but still finished down 9% on the day at US$30.61. The Dow had fallen by as much as 161 points on the Lehman rumours, but on the denial turned around to be down only around 70 points.
But on the death, the sellers came in.
One might have expected the gold market to respond to what could be the next investment bank implosion, but the reverse was true. Gold fell US$11.90 to US$879.60/oz on the surge in the US dollar and the fall in oil. The Aussie fell US0.3c to US$0.9522.
Base metals had initially rallied on the factory orders number and news that inventories had fallen back once more, but were also swamped by the US dollar in the end. Nevertheless tin, lead and nickel managed gains of around 2% for the day, while aluminium and copper closed steady and zinc fell close to 2%.
The SPI Overnight fell 15 points. Despite a big fall on the local bourse yesterday, this fall perhaps looks timid. Oil is down, gold is down and there is nowhere to hide in the banks. The ASX 200 is now only 74 points above major support at 5500. It does not bode well, unless we suddenly get that iron ore price announcement everyone is hoping for.
