Daily Market Reports | Jun 07 2008
By Greg Peel
“If Iran continues its nuclear arms program – we will attack it,” said former Israeli chief of staff and defence minister, and prime ministerial hopeful, Shaul Mofaz. “The sanctions aren’t effective. There will be no choice but to attack Iran to halt the Iranian nuclear program.”
This statement hit the wires long before Wall Street opened for business on Friday. It then sparked a jump in oil of US$10.75 to US$138.74/bbl. The oil market had been caught short on Thursday, and comments by ECB president Jean-Claude Trichet sent the US dollar plummeting. Believing the oil bubble to be deflating, the market had set itself too short, too quickly. Speculators will have sold a deal of out-of-the-money calls from US$130 up to US$150, and last night they needed to madly buy them back. Friday’s move shattered the record dollar-value move of Thursday.
But that was not all. Before the opening bell, the US jobs data for May were released. The number of jobs only fell by 49,000, which was not quite as bad as most expectations. It was, however, the fifth straight month of job losses. But the shock came in the form of the unemployment rate, which leapt from 5.0% to 5.5% – the biggest monthly jump in over 20 years.
There are many on Wall Street who pay little heed to the monthly jobs figure, as it is revised at least twice in latter months. There was also an immediate response from economists that the May figure is usually skewed by school/uni leavers as it is the end of the academic year. However, Wall Street was in no mood to be circumspect. The US dollar fell heavily once more, only adding to the surge in the oil price. The Dow went only one way, and closed almost on its low.
The Dow fell 394 points or 3.1% to 12,209. The S&P fell 43 points or 3.1% to 1360, making Thursday’s breach of 1400 seem but a dream. The Nasdaq also fell 3%.
The fall was indiscriminate, with even Exxon losing 2.8%. Thursday’s star Wal-Mart lost 2.4%. Investment bank-of-the-hour Lehman Bros fell 4.6% in another bad day for financials. Citigroup fell 5.5%.
There was not a lot of rational thought being put into trading on Friday – just a lot of “please just get me out”. The US dollar took another mighty tumble to nearly US$1.58 against the euro. A Morgan Stanley analyst had innocently published a report that suggested oil would be at US$150 by the Fourth of July weekend. The unemployment number renewed recessionary belief. Despite the logical notion that a recession in the US should result in a lower oil price, even the unemployment number helped to push oil up. Despite thinly-veiled threats, the Fed will have trouble justifying a rate hike in the face of the economic data. This is pure stagflation.
It was also a Friday, and the response was very knee-jerk. There is no doubt, however, that tensions between Israel and Iran are growing, despite Mr Mofaz not being in a position of authority to call an attack at this stage. An Israeli attack on an Iranian nuclear facility is not without precedent, having previously occurred in 1981. Speaking in Europe last week, Iranian president and card-carrying nutter Mahmoud Ahmadinejad blamed Israel for high global oil and food prices. He has constantly called for Israel to be wiped off the map.
Gold responded to the new shock in more traditional fashion on Friday, and rallied US$25.30 to US$902.20/oz. The Aussie jumped half a cent to US$0.9630.
The weak US dollar and a coincidental fall in metal inventories re-awoke the two metals of the moment, with aluminium rising over 1% and copper 2.5%. Yet nickel is still in the doldrums, falling another 3%.
The SPI Overnight fell 116 points, or 2%. A fall of that magnitude would send the ASX 200 through 5500, however with a holiday on Monday Australia does have the benefit of another session on Wall Street before posting a reaction. There may be some tempering in New York on Monday night, but uncertainty reigns once more. The VIX volatility index – a proxy measure of stock market fear – jumped 26% on Friday.
